New guy needs help with questions


I’m very new to the idea of real estate investing and have decided to concentrate on flips for the first year to build capital. In the last two months I have entered negotiations on three separate deals, all single family fixers between $150,000 and $270,000 approximate fixed value. All of my deals have fallen through before closing due to financing. I have good credit scores and history but cannot find lending that will allow for the repair costs.

Let me use my last deal as an example:

4 bedroom, 2.5 bath, 2 car garage, 1936 sqft, 2 story, built in 1973
Interior and exterior needs substantial work (approx. $30,000 in labor and materials)
List price: $185,000
Accepted offer: $177,000
Approx. repaired value (by CMA): $250,000

I have no problem with financing the purchase price, but have run into a brick wall when it comes to finding money for repair costs. The house appraised for near the list price but that leaves me no equity to work with. I did find one lender willing to finance based on the approximate repaired value but I would have to hold the property for a minimum of 6 months (which would seriously eat into my profit margin).

Any information on where to find financing would be greatly appreciated. I have lost over 20 FICO points in the last two months just by having my credit report pulled so often. Also I would much rather enter into negotiations with loan in hand.

Thank you in advance for any information you can provide.

It’s probably just as well…you would have most likely been upside down if you had done that deal…it’s too tight.

You need to buy at aout 70% of ARV less fix up and holding costs…in this case about $140K.

What is your long-term plan after you fix the properties (e.g., retail sale, wholesale, hold-and-rent)?


If the deal is right money will come. If hard money won’t loan to you the deal sucks.


Thanks for you rapid reply. To answer the above question, My longer(er) term plans include both rentals (single family and small multi-unit) and retail (my area is poised for growth in small townhome new builds).

Thanks again.

Thanks for the reply. I guess my question would be better phrased as where do I look for hard money?

Thanks again,

You can also talk to your lender about rehab loan options that will be cheaper but harder to aquire. These may work if you have good credit. I’m no pro but I know they exist, find a good broker that works with investors.

Google “hard money loan” and look for local results.

As for conventional financing, you need to go to your local, small bank and tell them that you want a construction loan.

I borrow money from Regions Bank, and they provide all of the rehab cash. Work with a good loan broker the first time, if necessary.

As for that 70% rule, your mileage may vary. If you’re doing higher-end homes, you might be able to go as high as 75% or even 80% and still come out okay. It all depends on how well you can manage your numbers and what kind of profit in dollars you’re aiming for.

Just out of curiosity, why would you say that deal is to tight? Acccording to the OP his initial investment would 207k and perhaps an additional 5-10k for unforseen problems and holding costs. So at worst case scenario he might spend 212-217k on the investment. If the FMV is true at 250k there’s at least 33-38k in profit that can be made. Taking it a step further if he wanted to price the home maybe 10k under FMV for a quick sale there’s still 28k that can be made on the deal.

I’m still somewhat new to the world of RE investing but that seems to be a pretty good deal, I don’t understand why that deal would be to tight. Are there some other hidden costs that I’m not seeing?

It might be an okay deal, but it might not. I think when people say a deal is “too tight,” they just mean that there is not enough margin for error.

The OP is admittedly new, so you have to assume there’s a good chance that the numbers could be a little off.

Price: $177K
Rehab: $30K
FMV: $250K

Right from the start he’s at about 83% cost-to-value, which is a little high. Anyway, he’s got 17% to give up…

6% of that will go to Realtors…now we’re at 11%.

2% will go to closing costs on the purchase…now we’re at 9%.

1% will go to seller help…now we’re at 8%.

Carrying costs (interest, insurance, upkeep, taxes, etc.) will be 1% per month…let’s say he holds it for 3-4 months…now we’re at 4-5%.

What happens if his $250K number does not hold? What if he has to drop it $10K? That would be easy…now we’re at 0-1%.

Oops…the new investor underestimated his rehab budget. Happens all the time. $30K is no good…let’s make it $40K. Now we’re at minus $10K to break-even.

Could this deal work as structured? Sure…it could. But going in a deal knowing you’re paying 83% of value–especially for a retail flip–means you either need to hit all of your numbers dead-on or accept the fact that you might not make anything.

I would hate for someone’s first deal to be that tight.

Idaho Newbie:

I flipped a house that my initial buyer tried to get financing through a conventional lender. They would finance the price, but not the repairs, & he had to get the house repaired 1st. He ended up losing the deal & his earnest $.

Perhaps next time another option could be to just flip it to another investor. You could do an assignment or double closing & still make maybe $2-5K on your deal. When you network, you may find a lot of investors out there willing to buy for tighter margins, i.e., 80% or 90% - repairs (they have their reasons - like 1031 exchange, etc.).