Are you considering purchasing a property with the intent to fix and flip? Financing a fix and flip property can be challenging, especially when dealing with fire damage or any other significant repairs. In this video transcript, we will discuss how to structure financing for a fix and flip property using hard money and seller carry.
The Situation
The person in the video found a good deal on a home that has fire damage, which is not too bad, just in the kitchen. The seller said she would possibly carry a portion, and the purchaser has $80,000 for the rehab work. The purchase price is $420,000, and the after-repair value (ARV) is north of $700,000.
The Solution
The video suggests that the property's financing can be structured in two ways:
- Fix and Flip Loan: The purchaser can obtain a fix and flip loan, where they can get up to 90% of the purchase price and 100% of the repair costs. The purchaser would come in with 10% of the purchase price.
- 100% Financing: The purchaser could do 70% of the purchase price with a hard money lender, have the seller carry back 30%, and then fund the $80,000 themselves. This approach would result in a true 100% financing deal.
Structuring the Financing
The video suggests that the purchaser could fund the rehab themselves, making it easier to do 100% financing between the hard money first and the seller carry back second. However, the financing structure depends on the purchaser's capital, location, and experience.
Finding the Right Lender
The video suggests that not all lenders will allow for supportive financing, which is the second lien that the seller will carry back. Institutional lenders do not usually like subordinate financing on these types of fix and flip deals. Therefore, it may be easier to structure the financing with smaller localized funds that do not have the same guidelines.
Conclusion
Financing a fix and flip property can be challenging, but it can be done. Structuring financing using hard money and seller carry can provide a viable solution. However, the financing structure depends on the purchaser's capital, location, and experience. If you are considering purchasing a fix and flip property, it's essential to work with a lender who understands the unique challenges and opportunities of fix and flip financing.