Posted by Kristine-CA on July 02, 2002 at 13:45:13:
Matt: 90 days is a long time to tie up a property unless the seller is really motivated. I am assuming you are are offering a low, cash price. Often times the seller will agree to less than what they were hoping for because they have an immediate need for the funds.
30 days is plenty of time to find a rehabber to flip to or to whom you can assign your contract. Also, and this is just a suggestion because I don’t know what investors are like where you are: I wouldn’t call the $5000.00 you are looking to get out of the deal a “finder’s fee” when you are working with buyers. I tell my buyers my asking price and if they agree, I offer them a discount if they will buy my contract so that we don’t have to do a double close and incur those extra costs.
FMV (after repairs): 50K
My Purchase Price: 20K
Repairs needed: 10K or less
I have only $500 to spend and plan on flipping this house to a more experienced rehabber for a 5K finders fee. Ideally (and correct me if I’m wrong), I would like to tie this property up with a sales agreement (with a small earnest money deposit) and have it sold, or flipped, to that rehabber before I close with the original seller (double closing in, say, 90 days from original agreement).
OK let’s say I can’t find a buyer in that 90 day time period OR I had to purchase this house QUICK-LIKE from the start. I enlisted the help of my trusty hard money lender for a 20K loan at [insert interest rate here] for [insert length of loan here]. Is it possible to pay this all back as one lump sum after the flip which generated 5K profit for me? If it isn’t, won’t time and interest eat into my profit as the loan ammortizes?? How the hell do these flips work with hard money loans, or any loans for that matter???
I need to have a ‘moment of clarity’ quite soon. Please help me understand this guys! Pre-thanks - Matt Hegedus
Re: Is this how it works? -flip finance question - Posted by Colleen-WA
Posted by Colleen-WA on July 02, 2002 at 14:40:15:
Your ideas of tying the property up with a contract and finding someone to flip to at closing is conceptually correct.
Hard money lenders would be used if you do not have someone to flip it to. You would repay in one lump sum at the end with potential monthly or quarterly interest payments in between, depending on the lender.
If I were to do this one and did not have someone to flip it to I would get hard money for the 65% of the FMV they will give in total. This, BTW, usually includes the points they require. I would only do this if the 65% included the purchase, repair and holding costs, or if I had the cash to make up the difference. I would only do this, also, if the going rate for profit was left over after the sale - in my area 20%. Then, If I got stuck without a buyer to flip it to I could do the rehab myself. I would not close with hard money if I was not ready to proceed with the rehab myself. If I did not want to do the rehab I would not close and either loose my earnest money or have a financing clause that let me out. I would try to avoid not closing.
I, also, agree with Kristine. 90 days is really long. 30 days is long for this kind of deal for experienced investors but OK to start with.