How'd you finance your first flip?

Question

I am starting out on real estate investing and am looking for my first deal for a fix and flip. To see what options there are I am wondering what you did to finance your first flip. Was it a hard money loan, were you able to save and use your own cash, finance through a traditional loan? What enabled you to take that first step into rehabbing?

For me I believe the best option is to use our home equity to pay for the repairs, loan interests, closings and holding costs . Then use a hard money lender to finance the purchase of the property. Any suggestions, tips and appreciated. The Arizona market seems very competitive, but I'm ready to take that next step.

Darrell Shepherd · Answer

On your first deal, its actually good to borrow money because the lender will keep you from doing anything stupid.

Mike Dmuchoski · Answer

Hard money is how I did it.

With hard money, you likely have a good deal if a) the numbers still work at hard money rates and b) the lender is actually willing to lend on it.

Jim Keller · Answer

I have done 7 deals in the last 12 months.  I have used 3 different lenders and had as many as 3 going at one time.  My first 3 deals I did with a combo of hard money and the same lender did a bridge type loan for a combined 92% LTV on the purchase price and I went out of pocket for the fix up and payments....... the first 3 were all around $200,000 so I ended up having up words of $65,000 in each deal.

The next 3 I did with a 80% ARV loan that is very expensive but finances 100% of the purchase and the fix up with no payments for the first 105 days..... so big leverage and a little less yeld but you can do more than 1 at a time for a small among of cash.

The newest one I have is 70% of ARV with 2.5 pts and 11.5% interest.  My out of pocket is just a little more then the second option and I get a bump in yeld also.  With this option there is no 105 day time limit so doing things like additional square  feet is possable.

Since starting though I have to say I have met 4 people that want to partner with me one I met on bigger pockets don't focus on the money.  Find a deal that anyone can see is good and do it.  On all of the deals I listed I made over $29,000 on all but one and on that one I made $16,000.  Focus on the deal and the money will find you.

Put your deal in escrow and find the cash I have a list of real estate clubs and meet ups to market to.  Once you find this great deal I'm talking about make a flyer and sell half the deal to a friend at the club if you need to, i bet you wont have to....... thats why rich uncles are rich they know a good thing when its handed to them...... good luck

Jim

Aaron R. · Answer

@Will Zena. I wouldn't call it "fronting" money. It is an investment in our business and we look at it as they are fortunate to have the opportunity to make a 10% secured return on their money. We made a case to many people: friends, family, old co-workers, REIA members etc. We got way more no's than yes's. But if you don't go out and search for money it will not come find you. There is plenty of private money out there right now, but just like good deals, it takes work to find.

Now if you don't have friends or family that have money to invest, you will need to expand your network and search. If you are finding good deals and can make a good business case, you will get private money.

Aaron R. · Answer

On our first flip we asked friends and family and ended up funding the purchase 100%. We paid 10% interest on their money and paid for the rehab out of pocket. Things went well and at the end of the deal all the investors wanted to roll their funds into another deal we had going. Most even increased from their original amount loaned.

Will Zena · Answer

can someone please explain what a hard money loan is? Is it a 100% loan with $0 down?

Nathan Paisley · Answer

We used a hard money guy with great terms. I've met a few builders who lend sometimes that would fund 100% and split the profits 50-50. Home equity lines would be a great start as well. Maybe someone else like a family or friend? Those are tough but if they're on the same wave length by all means give it a try. Also for your first flip try not to fix a tear down lol. Go for something where you can get in and out of in less than 30-60 days. Good luck.

Nathan

Nathan Lesko · Answer

Never actually thought of it like that but it makes perfect sense.

How'd you finance your first flip?

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