Newbie With $$$ Question, Please Help

Hi Guys
Awesome site, awesome members and information available, here’s my first post here and it relates to $$$.

I’ll keep it short and to the point (well, I’ll try)

There are three of us involved, we want to flip / rehab houses in the Orlando, FL area and we all want to make sure we do things right from the start.

We feel that loacting properties in this area won’t be too difficult, we have some good contacts in the RE business etc and are looking forward to getting up and running VERY quickly.

One of us has a home valued at $400K with just $60K owed on it.
We are looking to have around $200K to “play around” with so…

My question is, does anyone have an idea of the best, safest and cheapest way get the money we need?

We can obviously get the money as a second mortgage on the home I mentioned so should we do that?
Should we borrow money against that home equity from another source?
Should we be looking at hard money loans and offering that house as the guarantee?
Does anyone have any thoughts, ideas or advice in this area?

Any assistance in this area would be very much appreciated and if anyone has any Orlando info. we could use, that would be great too :slight_smile:

Thanks so much


Using a Home Equity Line of Credit will probably be your easiest and least expensive way to borrow. The problem is with 3 people involved you are not just effecting yourself if it doesn’t work out.

In my opinion, consider using HML for the purchase of the property and then the Home Equity Line of Credit for the fix-up and holding costs.

A HML will qualify the property which is a “second opinion” on your purchase price.

hey, congrats on your wise choice to jump in the biz. this is a new era in real estate investment. using HELOC $$$ is a proven strategy. i’m sure before you increase the debt on your primary residence you’ve thought long and hard about the depreciation of property values in Fla. now is not the time to be over leveraged on any real holdings in your state. $260K is hardly over leveraged, but when was it worth $400k? you’re right, locating properties won’t be a problem. Flipping them might be though. i think i read somewhere that for every 112 mortgaged properties in Fla, 1 is in foreclosure.

what does this mean? i’m also curious whether all 3 of you have an equal investment in the home you’re living in. if not, i’d rule out the HELOC.

i know you guys intend to flip, but what if you can’t sell the house? just in case, you may want to consider getting pre approved for an end loan that takes you out of the more costly short term financing.

i’m curious, what can you buy in orlando for less than $150K?

good luck. make it work.

Thanks for your replies.
OK, we have decided to forget using anyone’s home equity etc.
We want to go HML BUT, is it normal that all these guys want like 14, 15, 16K upfront to buy the deal?? That seems a little over the top.

We now have 1 guy in our group with a FICO of around 800, is that of any use or is it worth nothing?

There are plenty of homes around the area we can get from wholesalers in the 150 - 160K range with ARV’s around 230K and light to medium 15 - 25K repairs. We were thinking these numbers are pretty good or are we wrong?

To us, a 65% loan at 18% with around 15K upfront is nuts. Maybe we should somehow use the high FICO guy to get us funded another way?

Any ideas would again be very much appreciated.
We have spent a lot of time doing our home work, we have our GC in place (an excellent company we have known for years) but this HML situation seems tough!

If you have someone with a credit score in the 800’s then I would strongly suggest forming a some type of protective company be it a llc, corporation, or a llp. Then you would finance the purchase of the house through traditional finance companies in your corporate name. This would save you considerable amounts of money in interest and required downpayment.

I live on the East Coast of Florida on the Treasure coast and I would however strongly warn you that you have to find deals that you can market and 10% below current market value and still make a profit at or it would be to risky of a venture to attempt right now in the Florida market.

What I would suggest is that you find a company that has some experience doing this and get involved as investors with them to start with and make sure that they are operating in one of the few still hot markets that carries solid fundamentals behind. If there is nothing solid pushing the market, only specualtion I would stay clear, or you will have a long and bumpy ride ahead.

You can still make money in these times, but you cannot fall in love with a deal you need to have alot of deals in the pipeline so that you can walk away from anything without thinking twice, your money is made in the purchase, nothing else will make up for getting that wrong. The houses you are talking about at 150-160 worth 230 I dont think give you enough room in this market. By the time you finish your rehab you may end up in an even worse market. I think you need to really push to purchase rehabs at 50% of finished market value with an investment of no more then 65-70% of market value at completion of rehab.

Maybe it’s different in Florida but I typically see HML rates between 11 and 15% with no more than 2 to 6-pts at close. They also roll the points and (many times) the payments due during the agreed term into the loan so you pay nothing until the note comes due. 18% APR plus 10-pts seems OUTRAGEOUS to me! I would due some shopping.

The 65% of ARV limit is typical but some HMLs go as high as 75% (so I’ve heard).

Keep in mind too that HMLs typically will only give you the amount needed to purchase the property at closing and will not distribute any additional funds until some of the repair work has been completed (typically 3 draws while rehabbing). Therefore, you will need some cash to start repairs or get the Contractors to wait for their money until the first draw.

If one of you has $340K in equity available and is willing to risk/borrow on it, it would seem to me that that person could become the HML and loan the money to the group at a more reasonable rate (i.e.; like 12 to 14% plus 3-pts). He would get a Personal Note and Deed for collateral so if something did go wrong he could finance the repaired flip to cover his costs until the group can get the property sold. After all, he’s entitled to take a bigger piece of the pie if he’s the one taking the financial, and/or, FICO score risk.

Also, I agree with a target purchase price closer to 50% of ARV if your ESTIMATED repair costs run 10 to 15% - it IS a declining market AND your true rehab costs may likely be higher.

The LLC suggestion is a good one too (for asset protection) - but I don’t think a newly formed LLC will give you any borrowing advantages (I could be wrong but that was my experience). Lenders will base loans to new businesses on the particular project, assets, trade references (if any), and Personal Guarantees (of ALL the managing members of the LLC). It takes several months to 2, or so, years to develope business credit separately from your personal credit.

Best of luck to you!