I like to deal with private individuals for my Flip House Loans. I do this because it requires less paperwork, approvals take minutes instead of days, and I save a little on the fees.
Sounds great doesn’t it, less paperwork, faster approvals and you save money too. To do this I have to give the lender something too, they want security, simplicity and trust. The lender wants a well secured loan, made with someone who knows what they are doing and who gets the job done, and they want paid back on time.
I borrow only the wholesale purchase price of the house. I pay all other repairs and cost out of pocket. This simplifies the paperwork, avoids having to deal with repair draws, simplifies the loan terms, reduces loan cost and speeds up the process.
Let’s look at one of the typical deals that I do.
Repairs estimate: $20,000
Closing cost estimate: $3,000 (house & loan closing cost.)
Purchase price: $96,000 plus closing cost
Private loan: $96,000 (2 points, 12% interest for 4 months plus closing cost)
Sale Price: $165,000
Sales cost: $6,900 (sales side commission & sellers closing cost & warranty.)
Loan cost: $5,760
Repair cost overrun: $5,000
Total cost: $135,760
Profit: $29,300 18% of ARV (typical of the average 15% that flippers make)
MY RULES OF THUMB:
- I have found that my typical loan is $75,000 to $95,000 (about 60% of ARV).
- My typical loan cost is $5,000 to $6,000 including loan closing cost; if a project can’t support that amount it is just not a good deal, (Even when using my own money, I pay loan cost to me).
- Most projects are over budget so I add $5,000 to my repair estimates.
- My average flip time line is 4 Months start to close.
- I try and sell the house myself with a sign out front, plus Craig’s list, I hold open houses and put it on Zillow, the sign in front of the house works best.
- I tell realtor’s I will pay them if they bring me a buyer. I put “Agents protected” on the sign.
- If the house doesn’t sell in 2-weeks the house gets listed, paying the listing agent 1% and the selling agent 3%.
- If the house has a New A/C and New water heater I do not provide a home warranty, if I did not replace those items the buyer gets a home warranty.
- I never pay the buyer’s closing cost.
- If I have any doubt as to the maximum sales price, I hire an appraiser.
Finding Private lenders for your flips: Go to the Real Estate investor meetings and let people know what you do and that you are looking for loans and deals. All of my private flip loan lenders came from these meetings and about half my deals come from people I meet at these meetings.
Cash: as you can see it takes me about $35,000 cash to do a deal. If you do not have that
cash, find a partner or relative. Even if the 2nd lien cost you another $5,000 it is a good way to fill the money gap until you can save up the money.
Success comes to those who Act: Plan to do 2-deals in the next 10 months, go to meetings and announce loudly what you are doing, let people know that you are looking for lenders and deals. If you have been to meetings you know I make my presence known. Line up the $30,000 gap cash money part. If you are not aware of the paperwork you will need to do a deal start learning, visit my web site and read the resource section, talk to me or talk to someone for assistance. You must be ready when the deal strikes.
You found a deal now what: Go see the house, estimate repair cost, if the numbers work get the house under contract, use your contractor list to get repair estimates, prepare a flier for the lender, call your lenders list for the loan, schedule the closing, call your insurance agent for a builders risk policy, transfer utilities to your name, close the deal, hire the contractor, get the job done, sell the house. SMILE!