Hey everyone just wanted to explain this concept to those starting out or,if you have experience flipping and need access to more funds.
But before I explain how 100% fix and flip financing works.
I must disclose the truth about most hard money lenders terms
Standard terms from most hard money lenders are as follows
80% of LTV (Purchase price) 100% of construction costs loaned/ with a 20% down by you plus closing costs and points
ARV is usually 70-75%
12 month term
double digit interest rate and usually 3 points depending on experience, credit and reserves
This deal is tough for most investors because it requires the most money upfront and the investor is responsible for holding costs
On the plus side...
20-25% down if you have it puts you in a better equity position on the deal but it also limits your ability to do this at scale.
Then there is...
The 90% LTC hard money loan
For this program it usually is 90% LTV of purchase plus construction
Investor brings 10% plus 6 months reserves and they pay closing costs and fees
ARV is 70-75%
Rate and term based on your deal
This deal is not bad compared to the first deal.
The 10% is the equity play in this scenario and you pay closing costs points and fees plus holding costs for loan.
Not bad if you can bring the money to the table in this scenario and it can be used to scale better than the 80/100 program.
The 100% Financing option
This program offers the most leverage and is ideal for first timers and experienced flippers looking to do more deals with their contractors without tying up alot of the money upfront and holding costs.
Here is how it works:
Instead of bringing money down you participate in a equity share loan.
Were the funds cover the entire cost of the project at a 50/50 split.
The out of pocket costs to the borrow initially is the appraisal and a background check fee.
From there the loan is funded in escrow and holding costs points and fees are rolled into the loan.
Therefore you can complete the project without the costs out of pocket.
Requirements for this loan from most hard money lenders that offer it, are based on reserves, flip experience and collateral.
Which if you don’t have collateral, reserves, or experience then this loan will not get approved.
The alternative option is an alternative funding source that specializes in 100% JV funding that will fund even if you don't have the experience or the collateral, or limited reserves.
They will based the numbers off of the deal and property type.
Rehab funds will be paid by the lending partner and holding costs.
ARV 70-75%
After the rehab is completed the profits will be shared 50/50.
Terms for this loan is very competitive to other hard money loans because the source is partnering in the deal.
If your a new flipper its a very cost effective way to get experience and make money.
If your experienced its cost effective and scalable for multiple projects.
