Best way to finance this deal?

Question

Hi! I am under contract to buy and flip a house that I am paying $615K for.

The land is on two tax lots so my plan is to sell the extra lot immediately after closing for a projected $275K.

The property on the other lot will be a fix and flip with projected costs of $240K and an ARV of $750K.

I plan to use a PML of 2 points and 12% APY for 70% of the total cost. However, since I am hoping to sell the land first. My inclination is to suggest paying back the PML 70% of the land proceeds (presumably $168K) at that closing and then hold the remaining loan until I sell the house.

Is this what you would do?

Secondarily, if I had a buyer for the land before I close, could I structure the purchase to include them without doing a wholesale deal?

Thanks!

Magnus Wikström · Answer

@Fara Heath

Cool deal!

Tom S. · Answer

@Fara Heath  Just curious, how did this deal work out?

Jaycee Greene · Answer

Hey @Fara Heath, welcome to the BP Forum and this sounds like an awesome opportunity! Based on most of the work I do with HMLs/PMLs on behalf of my clients, 12% at 70% LTC seems a bit more conservative. Most of the lenders I work with (provided you have experience and a credit score over 660) would do up to 85% of the purchase price and up to 100% of the rehab costs, provided this doesn't exceed 75% of the ARV.

As for the idea of selling the land, great idea. I would try to portion that off as a separate loan that can be paid back quickly - you'd need to discuss your plan with the PML. Sometimes I've heard of PMLs doing "creative" financing like this where maybe they do a very short-term loan that can be paid back once you sell the land.