Financing a flip in the Bay Area

[Bryan Pham]

Hello BP!

My agent has contacted me about an off market deal in Santa Clara and it falls under the 'Cupertino school district' and located 5-10 minutes away from Apple's new campus. The cons of the property is that its located on a busy highway. 

Basic information:

ARV: 1.4 million

Comps in the area run from 1.4-1.5 million 

Owner Asking Price: 1.2 million

Very minor rehab, the cabinets and kitchen are a bit old and worn out. But keep in mind that I did not have a formal inspection yet. 

Estimated rehab cost: $50k

I have some basic questions on how to finance this deal and make it work. I am also going to call hard money leaders tomorrow as well. This is going to be my first flip if I could successfully lock down the property. I am wondering if people on biggerpockets can help me structure a deal that would work for this situation. 

I understand that for first time flippers, hard money leaders in the Bay Area will only lend on 70% of the ARV. Which means that I will have to come up with about 300K for the down payment and rehab cost. Is it possible to secure another loan for the other 30% of the deal? If so, how? I am not sure how creative I can get with this financing.

[Christian Wathne]

Hi @Bryan Pham. Yes, its possible to get a 2nd hard money to come in for the remaining 20-30% but rates will be higher. 

Every lender and deal is different, but standard is 80%ltv; 2points; 10% rate, then 2nd loan for 20%, 2points 15% rate

Assuming your numbers at 1,400,000 arv and 1,200,000 here's how your deal looks

Purchase price 1,200,000

closing costs (2%)= 24,000

points upfront on both loans (2ponts avg on 1.2million)= 24,000

renovation budget $50,000 (i would be very surprised if it was this cheap, you prob dont want to go builder grade on a 7 figure house)

carying costs (blended avg rate=11%, lets just round to 12% for easy math)= $12,000/mo, figure 4 months end to end, so this becomes $48,000

ARV=1,400,000 (cost of sale=8% = 112,000)

so 1,400,000 - 112,000 - 48,000 - 50,000 - 24,000 - 24,000 - 1,200,000 = -58,000

It would appear you would be on track to lose $58,000 on this deal