Tag Archive for: # fix and flip loan

70 Percent ARV: Why Can’t I Get More for My Real Estate Deal?

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The real reason your fix and flip lender won’t give you more than 70% ARV…

One thing new investors ask all the time:

Why do lenders only lend 70 or 75%?

Let’s go over the numbers and see how lenders come up with that 70% number.

What Is ARV and the 70% Rule?

The number we’re talking about is what percentage of the after-repair value (ARV) a lender will give you.

The ARV is what you can sell a property for after flipping, or what it can be appraised for on a refinance for a BRRRR rental.

Here’s an example of what a 70% ARV might look like:

You buy a property. The market shows it will sell for $200k after it’s fixed up. If your lender offers 70% of the ARV, that’s the maximum amount your loan could be. In this case, 70% of $200k is $140k. So you can get up to $140,000 as a loan when you buy this property.

So that’s $60k worth of value that’s not being covered. This is where investors ask the question… There’s still a lot of money here. Why can’t I borrow against that extra $60,000?

Let’s dive into why lenders stop at 70%.

Why Do Lenders Stop at 70% ARV?

If lenders stop at 70% of the ARV, what happens to the remaining 30%?

Profit

First, is profit for you. Why do you invest in real estate? Because you want to make a profit. And if you don’t factor in profit at the beginning of your deal, there’s not going to be any leftover for you.

So as lenders, we build in a 10-15% profit margin for you. Let’s say on average, it’s 12.5%. That amount comes from the 30% of the ARV not covered by your loan. 

In our example $200k property from earlier, 12.5% is $25,000, which will be profit for you at the end of the project.

Realtor

There are a few other people involved in this process, especially on the selling side.

When you bring in a realtor, you can expect to say anywhere between 4.8% and 6%. To keep it easy, we usually estimate 5%.

So of your ARV, we’ve already taken up 17.5% between your profit and your realtor.

Closing Costs, Cost of Funds, and More with a 70% ARV

Closing costs vary, but it’s safe to assume they will cost 1.5%.

With all the costs so far, we could be looking at anywhere between 17% and 22%, but an average of 19% total.

After you’ve purchased the property and started fixing it up, there will be more costs. Two major areas that should be factored into your budget are interest on your loan and a general overage budget.

Between these extra costs, we’re sitting at an average of 29%…

Which is exactly why lenders leave 30% of the ARV off of the loan they give you.

Making Sense of a 70% ARV

With real estate investing, the money’s in the money. Understanding and feeling comfortable with the numbers is the fastest way to start getting into great deals.

You don’t want to get into a deal that won’t be profitable for you. If you won’t get at least 10-15% profit, why do it? Your lender should leave space for your profit and other costs that come up.

Have questions or a deal where you need help with the numbers? Contact us at Info@HardMoneyMike.com, and we’d love to see how we can help.

You can also get more resources about real estate investing on our YouTube channel.

Happy Investing.

Home Run

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From start to finish, Evan really hit a home run with this one. Evan, one of our most esteemed sluggers when it comes to fixing up homes, saw this house and was immediately determined to get it out of the bush leagues and into the Big Leagues.

 

The people selling the house had really let it fall to pieces, and the purchase price was set at $169,000, which was below market at the time. There was some interest, but because of how much work needed to be put into the home, Evan came out on top with the bases loaded.

Rounding First

Evan had to start at the bottom with the foundation. There were cracks in the concrete throughout the home, which hadn’t reached the walls yet, but would have if left much longer. He dug tunnels under the home to access the support beams, then placed foundation repair pilings under each major beam. He lifted the home to the correct level, installed support cylinders under the beams, and shimmed them to the proper height.

Rounding Second

Next, he moved on to the floors and walls. The entire house needed new floors, including carpet, hard wood, and laminate. For both the floors and the walls, he kept his color theme neutral and went with grays and browns throughout the home, so as to make the home able to flow with any interior design that the eventual new homeowners would want.

Rounding Third

As he was nearing home base at this point, he had some last-minute touchups that were in desperate need. The kitchen needed new cabinets and countertops, and the bathrooms needed new countertops and sinks. He also spruced up the landscaping around the home to really make the house look sharp from the outside in.

Bring it Home

Evan really was the “cleanup batter” for this house. The bases were loaded – the house needed a lot of work. And with a full count staring him down.. BOOM! A dinger! A bomb! A Moonshot! He slammed it out of the park and brought it home strong. He ended up selling the property for $299,900 to a very eager couple excited to grow their family in that house. Nothing better than a Grand Slam to help bring this house into the Bigs.

 

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money lender will offer a slightly different type of loan, with slightly different requirements.

There is a loan that is perfect for your credit, your plan, and your property. You just have to find it.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

How to Get That Property Done: The “Finish a Project” Loan

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4 “finish a project” loan case studies.

One of our most popular loans is what we call a “finish a project” loan.

We call it that because… That’s exactly what it does! We want to help you finish your real estate project no matter what comes up.

Local hard money lenders like us are different than private money or banks. We finance things no one else will.

Let’s go over a couple examples of how this loan has worked with our past clients to see if it’ll fit with your current project.

Finish a New Construction Project

Once a new build is started, banks don’t like to give out more loans partway through. This is the situation our client James found himself in.

He was building a house for himself. After he bought the property and got started, he became boxed in and ran out of money. He told the bank, “I have a property on five acres. It’s going to be worth $800,000. I only need $250,000 to finish it.”

But none of the banks would lend to him, for several reasons:

  • The project had already begun. Banks never like funding a project that’s already started.
  • His income didn’t meet their requirements. The property itself didn’t matter to the bank because James’s income was lower than they were willing to lend to.

So, James came to us instead. The project was only stalled because of money. He needed the $250k to finish the project in 5 to 6 months so he could get his family out of the trailer they were staying in on the property in the meantime.

Here’s what we did: we gave him the money out in escrows, or draws. He got $70k from us up front, then another $70k later, then another $80k, and so on.

We didn’t need to pull his credit score, scrutinize his income, and make sure he checks every box. We just needed the property to CO.

Finish a Bootstrapped Project

When any sort of flip is sitting stale for too long, sometimes the owner needs extra outside money to get things moving along so the property will start generating income.

Our client CW was a realtor who was finishing a project by turning a traditional rental into a short-term one. He had been bootstrapping the project (aka, funding it from his own resources).

His funds were slowing down with the change in the market, and Airbnb season was quickly approaching for the area. He needed a last $50k to finish the project.

So, he came to us, and here’s how it worked for him:

  • He kept his mortgage on the property.
  • We gave him $50,000 in a second-lien position on the same property.

He was able to get the house finished up and fully booked out for 6 months – generating plenty of income to pay off his loan with us.

Finish a Project That Goes Over Budget

With certain types of loans, banks can halt part of the funding if the project goes over budget. Here’s how it played out for our client John.

He had a construction loan with a bank. It was a great deal: they gave him all the money to build the property, then in the end it converts into a permanent loan at 3%.

However, he went over budget… so the bank stalled it. He needed $60k to get the project back on track and keep that 3% loan.

Here’s how John did it:

  • We gave him $60k.
  • He finished the project.
  • He could lock in the 3% bank loan for a 5-year term.
  • He took out a HELOC and paid off his loan with us.

Finish a Flip!

This fourth “finish a project” loan is our most common: working with fix-and-flippers.

Our client, PS, had a flip. Or rather, he had too many flips going at once. This one had been sitting for over 6 months, and he just needed $25,000 to finish up the rehab.

For those 6 months, this property was eating up funds. He was making mortgage payments, hard money interest payments, taxes, utilities, and everything with zero inflowing cash.

He had another hard money loan on the property, so we were able to come up behind him and get him the $25k.

Within 3 weeks, the project was complete and put on the market. Four weeks later, it sold, and he paid both loans off.

Why We Do These Loans

Big lenders won’t do deals like this for you. But as long as we’re in a safe lien position, we love being able to help you with these project finishes.

A couple of tens of thousands of dollars right when you need it can save you years of financial recovery.

Do you need a “finish a project” loan? Feel free to reach out at Info@HardMoneyMike.com. We’d love to see if we can help.

Happy Investing.

The Best Seat in the House

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The “best seat in the house” is most commonly known as having the best seat in a theater. But for one of our flippers, her goal for every house she flips is to leave it with the new owners having The Best Seat in the House. She says that this spot in the house, which is different for every home, defines the home and is the point at which she starts and finishes her renovations. As we love hearing her say, “It’s the heart of the home”.

 

To her, flipping a house isn’t just about the renovations and the fixes. It’s about the overall improvement of the home. It’s about bringing life and love back into the home and getting the home back to a point that it can support its new owners to its fullest extent.

 

When she found this particular house, she knew almost immediately that the best seat in the house belonged in the living room. This room had a beautiful rustic brick wall, a fireplace that had immense potential to bring warmth and comfort to the room, and a gorgeous view out of a large bay window. So, as is her way, she started in this room and spread out from there.

The house needed new floors, new paint, and the bathrooms needed gutting and renewal. That’s not including the kitchen, which needed all new cabinets and appliances.

To break down the numbers, she bought this home for $135,000. She spent 4 months and $45,000 on the renovations and fix-ups. In the end, she was able to sell this home to the excited new owners for $239,900! She told us that one of the things that helped her sell this home so quickly was, in fact, the best seat of the house. It’s a unique way to show how much potential a home has. A lot of the time with house-shoppers, it’s about a feeling that they get when in the home. Having them sit down in the best seat of the house is a tremendously successful way for them to get that warm and fuzzy feeling.

Moved by curiosity, we asked her if she had a Best Seat of the House in her own home. She replied, “Absolutely we do, but if you want to sit there, you have to move the dog.”

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money lender will offer a slightly different type of loan, with slightly different requirements.

There is a loan that is perfect for your credit, your plan, and your property. You just have to find it.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

Trash to Treasure

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One of our favorite parts of this business is witnessing a property go from trash to treasure. This property in Texas was purchased by one of our Great’s when it was in a very rough state. The history of the property involved abandonment, poor renters who didn’t care for the place, to more abandonment. There was a lot of work to do. But this particular fix and flipper had an eye for properties like this. He can see through the rot, past the trash, and see what potential the house has.

 

He started with the foundation and bones of the house. There were foundational cracks, mold, and rot throughout. It was a necessity to take care of all of that first and foremost. A good, solid house needs upstanding and sturdy bones.

 

He moved on to the kitchen and bathrooms, both of which needed some upgrades and serious TLC. With new floors, tile, and appliances, the kitchen made a complete 180°. He went with a clean, white look and the place really sparkles.

For the bathroom, the whole thing needed replacing. He put in a nice jacuzzi tub, which really adds a nice touch to the feel of the bathroom. A modern, sleek vanity mirror combo catches the eye and invites people in with raised eyebrows. Finishing off the look with smooth walls and ceiling, exquisite tile floors, and a brand-new window, this bathroom sure is a treasure to behold.

Finishing the rest of the home with this same effort and determination, the house was flipped into a home and the new buyers couldn’t wait to sign on the dotted line. When the house was trash, it was purchased for a measly $135,000. When the house was flipped into treasure, it was sold for a whopping $230,000. And it took just 4 months to do it! With a solid crew at his back, our guy turned this home into something he can always be proud of. And this home is packed full of treasure and will never be trash again.

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money lender will offer a slightly different type of loan, with slightly different requirements.

There is a loan that is perfect for your credit, your plan, and your property. You just have to find it.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

The Foundation of a Good Home

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The foundation of a good home goes a lot deeper than what you can see. Not to be too overtly obvious about it, it starts with the foundation of the home. Having a strong home means having a solid foundation.

 

There are some fix and flippers out there who may try to cover up foundational issues in the home in thinking about their bottom line. They see a crack going through the concrete floor and decide to put a new floor over top and not let the eventual buyer see that. They don’t want to spend the money and time to fix a large foundational issue with the home, it’s far too costly. Unfortunately, come a year later, that new homeowner now has cracks running up their walls.

 

We don’t work with those kinds of fix and flippers. We believe in integrity and honesty, and we don’t want to invest in those who try to trick people. The foundation of a good home starts with hard work, and a sturdy foundation.

 

Take this fix and flipper we worked with last year, the initial photos he sent us of this home showed many foundational issues, and a large part of his budget was put toward fixing those issues.

He knew that just putting up a wall or putting down a floor to cover the problems wouldn’t benefit the house or the homeowner in any way. It was crucial to fix these issues, and he had to do them right. It started with digging tunnels under the home to access the support beams. He placed foundation repair pilings under each major beam, used hydraulic jacks to lift the home to the correct level. Finally, support cylinders were placed under the beams and shimmed them to the proper height.

 

It’s not easy work, or cheap work, but it’s necessary work. The end result speaks for itself, and for decades to come. The new homeowner can be confident that they are living in a sturdy, good-quality home. They won’t have to worry about any foundational cracks peeking up anytime soon. This home can now be a “forever home” because it has a rock solid foundation.

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money lender will offer a slightly different type of loan, with slightly different requirements.

There is a loan that is perfect for your credit, your plan, and your property. You just have to find it.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

Homegrown Happiness

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Homegrown happiness is a goal that every homeowner has. This home, recently flipped by one of our long-time, outstanding flippers, Ryan, goes far beyond homegrown happiness. The happiness doesn’t start when you walk in the door, it starts when you walk onto the property. What he did to the land and the exterior of the home is really what makes this house shine.

When he first walked onto the property, it was as though the land was trying to take back the area and swallow the house back into its wild, arboraceous garden. There was a thick foundation of old, decaying leaves covering the land from the edges of the house all the way out to the fence lines. There were dead tree limbs laying to and fro. The fences around the property were cracked, stained, and partially uprooted. Ryan knew that he had to start on the outside if he even had a chance of pulling this house out from under this mess.

With a good landscaping crew alongside him, they whipped this place into shape quickly. Give a little TLC to the land, and it will give it right back to you in spades. Homegrown happiness is found with a bright green lawn, sparkling new white paint on the fences, and the trees trimmed and happy. This property had an entirely new feel to it. It was welcoming and comforting. It made people want to take a deep, full breath and just enjoy the scenery.

And on top of the beautiful landscapes outside, he turned the interior of the house into a shockingly charming home. It goes to show that a homegrown happiness is only truly found if both the interior and the exterior of the home reflect the TLC that you put into it.

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money lender will offer a slightly different type of loan, with slightly different requirements.

There is a loan that is perfect for your credit, your plan, and your property. You just have to find it.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

Make Yourself at Home

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Many homeowners have a goal of making their home so comfortable and inviting, that they can say to anyone, “Make Yourself at Home”. For some, it comes easily, as they are natural caretakers and hosts. For others, it comes with much more effort. But the end result is always the same. People are so comfortable and have such a feeling of welcome in the home that they almost don’t want to leave.

That, right there, was the main goal that Ben had when fixing up and flipping this home. He wanted to provide this home with such a magical makeover that the new owners would feel as though their home was so inviting and cozy that they could welcome anyone in and offer them that homely warmth that we all love so dearly.

Ben knew that a lot of that comfort comes in how the home is furnished and designed. However, he also knew that a big part also comes from the house itself, and the feeling you get when you walk in. The bones and structure of the home go a long way in making the house feel a certain way. In addition, the flooring, paint, and appliance choices he made were an integral part of his ultimate vision. He wanted to provide a house that had the strong beginning and foundation of the warmth and comfort that would eventually be present in the home.

With his focus set, he was able to turn this house around in less than 5 months. He purchased the home for $157,000 and ended up selling it for $312,500! Not only did he accomplish what he set out to but made more of a profit than expected in this tough market. That goes to show you: giving a house that warm and fuzzy feel goes a long way. People who have homes that are so welcoming always want to share the warmth, invite people in, and say “Make Yourself at Home!”

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money lender will offer a slightly different type of loan, with slightly different requirements.

There is a loan that is perfect for your credit, your plan, and your property. You just have to find it.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

Go Big or Go Home

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You’ve heard of the saying, “Go Big or Go Home”? Well, why not make it “Go Big AND Go Home”? With what we saw happen with this property in Aurora, CO, we can confidently say that Phil, the fix and flipper, pulled out all of the stops in order to make this house a home.

 

Purchased in mid-summer at $188,500.00, the house was in rough shape. Phil set his budget at $45,000.00 with everything from demo and new paint to new hardwood floors and updated appliances. Due to his keen knowledge of the area and the upper class neighborhoods nearby, he knew he had to bring his A-game, so that he did.

For instance, take a look at this half bath. He completely gutted it and replaced it with a modern, sleek look. He re-textured the walls, put in new floors, and finished it off with a gorgeous new vanity with a drop-in sink. Talk about jaw-dropping.

We move into the kitchen and see that his A-game didn’t stop in the bathroom. Again, he completely gutted it and put in new floors, new tile, new appliances, and new paint. Everything is sparkling and new. Almost too luxurious to cook in, right? No way, this kitchen offers any chef the ability to make scrumptious masterpieces that look as good as the setting they were made in.

The fact of the matter is, Phil took this home from rags to riches. He saw the beauty underneath what was left by the previous owner. And a good thing he did! He ended up selling this house for $330,000.00 after only 4 months of solid work! That’s an incredible payoff and he earned every penny. There is no doubt about it, he went BIG and made this a home.

 

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money lender will offer a slightly different type of loan, with slightly different requirements.

There is a loan that is perfect for your credit, your plan, and your property. You just have to find it.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

Cottage in the City

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In today’s wild and crazy world, who wouldn’t love a cottage in the city? You get the convenience of being in the city, but at the same time you get the warm, cozy feel of a cottage. And not just any cottage, this home offers far more than your average cottage. Jed and Sam found this property out of sheer luck, they weren’t even initially thinking of looking in this neighborhood. They stumbled across a diamond in the rough and knew it from the get-go.

This 5-bed, 3-bath, 2,506 square foot home hadn’t been updated in over a decade and these guys were able to purchase it for $260,000. Their scope of work included everything from demo to bathroom facelifts.

Let’s start with the kitchen. Not a bad looking kitchen to start with, the design is gorgeous. But by replacing the appliances and countertops and giving everything a new shine with some fresh paint, it looks like a brand new kitchen!

And the best part about flipping is that you don’t always have to go above and beyond. Simple fixes such as new carpet, smooth ceilings, and refinishing some wood can make all the difference.

These guys put in their best effort in the small touches that aren’t seen in the photos. Things such as closet lights that are motion detected, and mirror defoggers in all of the bathrooms so the mirrors won’t fog up during a shower. When all was said and done, this homely cottage shot up in value like this neighborhood had never seen. At the onset of this project, they set their ARV at $340,000. But interested buyer after interested buyer set the final offer price at $388,500!

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money lender will offer a slightly different type of loan, with slightly different requirements.

There is a loan that is perfect for your credit, your plan, and your property. You just have to find it.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.