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Fix and Flip Financing; Just the Fact’s Ma’am

Oct 16, 2017 / Real Estate News

I’m always amazed by the late TV charlatan’s hawking their real estate get rich quick schemes to the sleep deprived. There is one thing I’d like to tell you… there are no (zero | none) “No Money Down” homes for sale on the market today in a very large, large, large majority of the country, and if you find one, chances are the property won’t work as a fix-and-flip because it’s either way over-priced or in such a depressed market you’ll never get it re-sold. Forget the tricks and schemes used on unsuspecting homeowners.

Let me tell you about the real financing options that are available in most markets.

Traditional Lenders
On my first fix-and-flip back in the mid 90’s there were still “non-qualifying assumable loans”, basically you’d assume the loan that was currently on the property – no qualifying, no questions asked, SWEET! Well, those days are gone.
Today if you have a relationship with your bank or credit union, set an appointment and go in and speak with someone about what type of financing is available on an “investor” purchase. Chances are they will require in the neighborhood of 25% down, but they will offer you the best interest rates and terms.

Now if you’re purchasing the home as an “owner occupant” you can qualify for 30 year financing with as little as 3.5 to 5% down, and if you’re a veteran, ZERO down! Nobody says you have to stay in the home for 30 years… if you’re an owner occupant, you can buy and sell as often as you’d like.

Investor Rehab Lenders
In some markets there are institutional type lenders that specialize on loans to fix-and-flip investors. In Denver there is a lender that has been around since I’ve been in the business; MMTC Merchants Mortgage & Trust Corporation; they do fix-and-flip loans and fix-and-hold loans – they will loan you up to 90% of your purchase price and 90% of the fix-up costs, plus if you have equity in another property (like your own home) they’re happy to use that equity vs. you bringing cash to the table.

Hard Money Lenders
The vast majority of deals I’ve done have been with a hard money lender. I’ve been working with my guy so long that he finances 100% of the purchase price, and I pay for 100% of the rehab costs. Now working with a hard money lender is expensive… as an example; 2% per month for the first two months, and 1.5% per month for each month thereafter, with a one year balloon. Now you might say, “Are you crazy, I’d never pay that!” but can you imagine the negotiating power you have when you write an offer for cash and can close in a week?
Also, you’ve got to consider the alternatives; with a bank or credit union you might spend weeks with the approval and appraisal process (enough time to possibly lose the deal), and you could possibly not be approved! Yikes.
Time is money, and if you’re planning a 60 to 90 day rehab and out project, the numbers and power of a hard money lender is a definite advantage.
As your real estate broker for a referral to a hard money lender and or look in the paper and craigslist, there are many available. ***Never, ever, ever, pay any fees up-front for any hard money lender, unless it’s $40.00 for a credit report.

Points to remember
There are no magical “No Money Down to Riches” real estate deals.
Always use a local lender – never use a national lender that does not have an office in your town.
Any lender, private or public wants you to have some skin in the game… cash or equity.