Funding options for first flip w/ minimal holding costs

[Ben Wyatt]

I've been researching for a few months, and my wife and I are interested in doing our first flip soon. Unfortunately, I'm having a hard time figuring out what to do with financing - especially with holding costs. 

Our long-term goal is to use the proceeds from our flips to pay for our kids to go to college. Our oldest is about 10 years away, but we have zero college savings. We could start saving now the traditional way, but wouldn't probably be able to make a significant dent in her costs. We don't want the kids to have student loans in their 40s like we will. 

At the moment, I'm thinking 50% of profits from each flip will go toward college savings, with the rest being used to fund future flips. Over time, I'm sure the balance will shift so that a larger percentage will go to college, as we build a cash base for flipping. After we get a few under our belt, I hope that we'll have enough cash on hand to make funding a lot easier for future projects. 

We don't have any meaningful liquid cash or home equity we could use to fund a flip, but my wife does have a beneficiary IRA with something around $65,000 in it. We'd have to pay income tax on any distributions from it, but we might be willing to tap into it for up-front costs like a down payment or points. However, we want to keep any distributions to a minimum, since it's our "safety net" at the moment.

We both have excellent credit - we hover around 800 - and we're willing to explore pretty much any financing option. We don't have a ton of "free" cash every month, so we want to focus on keeping holding costs to a minimum for the first few deals.

I do get a bonus twice a year at work, but it's not a huge amount. Plus this year's bonuses are already spoken for, for improvements at our house.

In our farm areas, we're looking at $30-60,000 houses needing $15-30,000 in repairs, with an ARV of $100-125,000. (For the locals, we're mostly looking at Greenwood, Franklin, and south side Indianapolis.)

What options should we be looking at? 

I've been looking into hard money, but it seems like the holding costs would be pretty high on a monthly basis. Do any hard money lenders let you roll the payments forward to the end of the loan, so that you can pay them out of your profits at closing?

Alternately, we might be able to qualify for a traditional mortgage, but we'd still have to figure out how to pay for repairs. 

I've also been toying with the idea of taking a large-ish personal loan to pay for the holding costs for whatever option we choose. If we had a personal loan for 4 years to cover 6 months of holding costs, our out of pocket each month would be a lot lower. Then we'd pay off the loan out of the profits, having paid only a relatively small amount of interest on those costs.

I don't think we know anyone (who has money) well enough to ask them to partner with us, but I'm definitely open to partnering with someone, especially early on.