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Updated over 10 years ago on . Most recent reply

If I Use A HML To Fix/Flip, What Costs Can I Expect To Incur?
Hello BP,
I'm looking to get started looking for my first property to flip very soon. I will be using a HML that wraps all points and fees into the loan, and hopefully will have no interest payments for the first six months. I'm wondering, what costs can I expect to have to pay out that WON'T be covered by the funds I have from the HML?
Thanks in advance.
-Jason E.
Most Popular Reply

If you can find one that will wrap all points, fees, and payments into the loan then you should just have the appraisal as far as the HML part. You will have other costs, though, that aren't related to the loan. Inspections, termite certificates, recording fees, utility fees, title company fees, etc.
You will very likely have significant cash out of pocket needs, even if the HML does this. Points and payments on a six month loan can easily be 10% or more of the amount borrowed. So, that reduces the proceeds of your loan to 90% or less of the amount borrowed. If that covers rehab and purchase you need a screaming good deal to avoid having cash out of pocket. If the HML lends 70% of ARV your purchase plus rehab would need to be 60% or a bit lower to avoid being out of pocket.
Also be aware that most HMLs will hold most or all of the rehab budget in escrow. So you will need to cash to do the work. Then it gets inspected and you get a draw on the rehab escrow.