Flipper/Rehabber · Braselton Ga · Member since 2016 · 24 posts · 2 votes
I have a chance to barrow $20,000 from a loan club. What I would like to do is use it along with a Hard Money Loan as the 10% I need (example Hard money lender does 85 or 90%%)
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
10y
The answer is yes. Thats a great way to compliment your hard money loan and achieve no money out of pocket of deals.
Hopefully, you have some money in the bank just in case you can't sell the house right away and need to make payments for awhile. Or if you decide to refi the house and pull all your money back out.
But its the perfect way to do it. 90% from the hard money lender and use the lending club money for the other 10%.
The risk there is that if your flip loses money, you will not be able to pay off your loan club loan and could end up owing them a bunch of money. That being said, thats the risk you run with every deal out there - that you might lose money and will need to eat the loss.
I would definitely do it. But now you have 100% of very high rate debt which is going to add to your holding costs (not to mention purchase costs). So you're really going to need to cherry pick your deals to allow for the added expense.
But its better to make something than to make nothing.....
Madison, WI · Member since 2016 · 53 posts · 23 votes
10y
There aren't enough details here to give you an answer. What is the money for? What are the terms for each loan? What is your expected ARV and plan to pay those loans back?
Flipper/Rehabber · Braselton Ga · Member since 2016 · 24 posts · 2 votes
10y
Andre the $20,000(Payment on this loan is $845mo.) will be to have in hand, I am to have 10% according to hard money loans. I would like to look at homes to flipp that sales around 40-60 thousand. I of course don't have a ARV because I will be looking for property.
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
10y
The answer is yes. Thats a great way to compliment your hard money loan and achieve no money out of pocket of deals.
Hopefully, you have some money in the bank just in case you can't sell the house right away and need to make payments for awhile. Or if you decide to refi the house and pull all your money back out.
But its the perfect way to do it. 90% from the hard money lender and use the lending club money for the other 10%.
The risk there is that if your flip loses money, you will not be able to pay off your loan club loan and could end up owing them a bunch of money. That being said, thats the risk you run with every deal out there - that you might lose money and will need to eat the loss.
I would definitely do it. But now you have 100% of very high rate debt which is going to add to your holding costs (not to mention purchase costs). So you're really going to need to cherry pick your deals to allow for the added expense.
But its better to make something than to make nothing.....
Flipper/Rehabber · Braselton Ga · Member since 2016 · 24 posts · 2 votes
10y
Thanks Mike,
I am also debating maybe finding an investor who needs funds with a good record for flipping and maybe they give me a nice return. Have you ever heard of that being done?
Investor · Dallas TX, United States · Member since 2014 · 1k+ posts · 1k+ votes
10y
It sure is a good way, as long as the number on the deal support the loan. If the numbers are good then you are in this deal with none of your own cash, but you get to keep 100% of the profit. Any deal where you risk none of your own cash and keep all of the profit is a good deal. Just be careful that your numbers are correct and that you can handle the holding costs and any unsuspected rehab costs, that magically appear after demo.
Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
10y
Every active flipper we know does this, @Forest Williams, and the reason is simple; eventually they have enough deals that they run out of their own money. If you're only doing one deal and you have some cash however, I would use that first since it will reduce your holding costs and increase your profit.
In no way am I suggesting you overpay, but reducing holding costs might allow you to pay slightly more for a property, be a bit more competitive, and increase your odds of obtaining a profitable deal. On the other hand, if borrowing the last 10% allows you to hold some cash aside, you can use this as an emergency fund if/when you exceed your planned expenses. You need an emergency fund no matter what and a wise lender won't fund an undercapitalized deal anyway.
Understand too that for a variety of reasons, some first position lenders will object to you taking a second position loan for 100% leverage. Some will insist you have some skin in the game for fear of you walking away from a deal gone bad. A second position loan can also preclude a deed-in-lieu for the first position lender, if this is ever necessary. The lender can't actually stop you from obtaining a second, but they can call their first if they find out, and demand immediate payment. Talk to your first position lender about this and see if they object. Some will care and some won't.