Is this a way to fix and flip?

Question

I'm new to the real estate world, but happy I'm finally diving in.

My original plan was to wholesale, as I don't have the capital to purchase and rehab properties, but the more I read/learn/absorb, circuits in my brain connect the dots and I realize different ways of doing things.

There is a property I'm looking at and the asking price is pretty close to the typical ARV-*70%-repairs-assignment fee. But the house is in a location that my wife and I like.

So this is what clicked. Tell me if it makes sense.

I'm thinking what I can do is get the property under contract and then find a hard money lender to lend me money for the property + rehab. Then simply (it's never simple) I fix it, live in it till the end of the year when we go to move out to AZ, put it on the market, sell it, pay off the hard money lender, and boom I just profited much more than if I wholesaled the deal.

Does it work like that? (Using hard money lenders to get capital to fix and flip)

Here are the numbers.

ARV $300k

Rehab $40k and that's giving me a lot of room for error.

Asking price $199k

Negotiate price down to 175-185k.

That's a potential profit of 75k minus tax.  That's much better than assignment fee of 10k. Not to mention I can live in the house in the meantime.

Am I delusional or does this make sense?

J Scott · Answer

Hard money lenders will  definitely finance fix and flips, but not if you plan to live in the property.

Jesse Kozazcki · Answer

@Elizabeth Miller yes that is exactly what my plan B is! It will be good too because they'll have experience and I love be able to learn a lot from that.

Elizabeth Miller · Answer

@Jesse Kozazcki find another local investor and do a joint venture, you bring the deals and manage the rehab they bring experience, connections, and funds. Split 50/50 or whatever is agreeable to do the deal. I’m in a similar situation I have time and funds, but growing my connections and experience.

Don Gouge · Answer

The problem you are going to face with hard or private lenders is that you plan to live there. The Dodd/Frank law will not allow a non licensed mortgage originator to loan to a homeowner.

Tanner Marsey · Answer

FHA loan and do a live in flip.

Perry Farella · Answer

Jesse,

A couple other thoughts for you. Are you a Veteran by chance ?  if so there is a VA loan at 100% that also allows you to add in needed rehab dollars all at zero down for a 30 year term rate loan based on your credit score.

If not why not consider an FHA 203k rehab loan that requires a 3.50% down payment but all that can be gifted from significant other, close relatives. Plus the contract can be written such that Seller pays all closing costs for buyer. The rule is live there for 12 months before leasing it out to tenants. The ARV will be based on the purchase price plus rehab dollars needed. As posted above you can even buy a 2 to 4 unit property with 3.50% down with this loan. Ideally find the worst house in the best area that has great sales comps to lift your ARV. You get the security of a 30 year fixed rate with no pre-payment penalty to allow you to sell if you wish.

I have helped clients do what you are describing if you want to check my blog link below for stories.

Rick Pozos · Answer

Here is a "Plan C" for you if you can not find a partner with cash. Wholesale it. Take the 5k or 10k or whatever and get the bills paid down or start saving.

Get good at finding the deals. THAT is what is going to be valuable for you. If you can find deals on a regular basis, you will always be able to wholesale properties for income. Then when you have the capital from all those wholesales you did, you can jump into rehabbing for yourself. You can also partner with people on a few deals also.

I still wholesale some deals, I rehab some by myself and after 15 years I still partner with people (most of the time they bring me the deals though).

Remember 5k is still a bunch of money, especially when you have plenty of bills and as you said, "A low paying job".

Wes Johnson · Answer

@Jesse Kozazcki

It's not a hard money loan you're looking for since you're  not able  to put any of your own money in. There are 100% HML out there but even in those situations you have to put down a hefty deposit that'll be used toward the deal when you find one.

Sounds like you just need a partner. The partner brings all of the money and you bring the deal and manage it /oversee the rehab and scheduling. You essentially play the part of the project manager.

You and the partner will have to determine how the profits are shared and there's really no standard split for that type of arrangement. Just whatever you and your partner agree to. Set up an LLC and have an attorney draw up the partnership documents that spell out everything BEFORE  you start any work or start offering for deals.

Sam Shueh · Answer

HM requires you to put your own money down for rehab and cost of purchase. No such thing as zero down to my knowledge.

Sam Shueh · Answer

Don't forget #% interest for X month to spend When you sell it you need to pay closing cost and commission.

Is this a way to fix and flip?

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