I am looking to purchase my first house to rehab and flip in the next couple months. Here is an overview of my situation:
* I have a credit score of around 710 and a gross income of around $2300 per month.
* I have never had a mortgage nor have I ever had an eviction.
* I have no debt service obligations other than $180 per month in credit card payments and $70 per month in car insurance.
* I have a 9-year-old chapter 7 bankruptcy that was due to medical bills.
My parents have offered to help me financially, which would consist of them taking out a line of credit on a rental property they own free and clear to loan to me, which I would be required to repay at a flat 10% of the money borrowed (for down payment, fixed & holding costs, and renovations). If for some reason I cannot secure a conventional mortgage, we had talked about setting up an LLC where they could get the mortgage and then assign the deed to the LLC, in which we would both be members (I think I am understanding this correctly, but please correct me if I am wrong). I have three questions:
1) If the latter scenario is required, and the mortgage is originated in their name and put into an LLC, how would I gain the "credit" or experience that is required for obtaining hard money loans down the road? From my research, hard money lenders like to see that you have experience flipping 1 or 2 properties for them to deal with you. If this wasn't structured in my name originally, would that present a future roadblock? I plan on putting together highly detailed project books (details of the purchase, budget, cost expenditures, before and after photos, and sale details like DOM vs average area DOM, sale price as a % of ARV, etc.).
2) Is there a better way to do this investment than I have outlined above? I am a newcomer to real estate investing, and I'm willing to change my ideas if better options are available.
3) Conventional mortgage aside, I am well-aware that all-cash buyers have a distinct advantage in moving quickly when deals become available, and all-cash is required on sites like auction.com. Is having an available line of credit that is willing to be loaned to me able to be used to bid on auctions of properties? Or I guess another way to ask that questions is what type of proof of funds generally are required when buying as all-cash? Does it have to be literally cash, or would something highly liquid like a HELOC be considered cash for those purposes?
