This article was originally posted on this site, on 1/23/13, as “2013: The year of the quick flip.” Did 2013 turn out to be the year of the quick flip? We certainly did our share of quick flip loans. However, I think that we failed to anticipate one thing: bulk buyers. Several very large bulk buyers grabbed up just about everything in site, making it hard for the little guy to get a shot. As inventory has diminished, at least from the point of view of the big players, there are still many great buys to be had, and I believe that small outfits or individuals will be able to buy well in 2014. Thus I am somewhat revising my prediction. 2014 shall be the year of the quick flip (for small players, that is). And so I say, “bring on the quick flip.” We’re ready. Are you?
Kris Gillmore and Clay Sparkman
Over the past six years we’ve all watched real estate prices come crashing down, in many cases forcing lenders to foreclose and take back the property. Although this is a sad misfortune for some, it is a tremendous opportunity for others. With regard to quick-flip investment property, we have always been of the opinion that the profit is made primarily in the purchase, not in the renovation or sale. And now, more than ever, banks are willing to unload their inventory at a discount below market value.
As you know from previous posts, Fairfield Financial is laser focused on doing these types of loans. Here are some guidelines for what we’re looking for and what we’re generally able to fund.
65-70% of the ARV – Depending on the area and the strength of the borrower, 65% LTV is our target (including fees), but for a very strong loan we can often get to 70% LTV. We hold construction funds in an escrow account, which enables us to loan based on the ARV, as opposed to the purchase price.
Loan Size – Right now our sweet spot is in the $150,000 – $250,000 range, although we’ll consider loans from $50,000 – $750,000.
Near 100% Financing – We can frequently finance 100% of the acquisition and rehab costs, assuming that the LTV is appropriate (though the borrower may have to cover the loan fees and closing costs out of pocket). This is really all determined on a case by case basis.
Down Payment – We do require that the borrower have some skin in the game for at least the first few loans. Generally speaking, this amount can be as little as 5% down, but the down payment is really determined on a case by case basis, depending on the property and the strength of the borrower.
Secondary collateral – If a down payment isn’t feasible, we can always consider the use of a second property as collateral. This is another way to put some skin in the game.
Term – Typically, these are 12 month deals with no prepayment penalty. Multifamily rental properties can go up to five years, but this too is determined on a case by case basis. However we also do 6 months loans with lower front end costs and an option to extend for an additional six months.
Exit Strategy – As always, this is crucial. We’re looking for borrowers with a solid working plan and a clear and realistic exit strategy.
Knowledge of local market – This goes hand in hand with the exit strategy. We want to be sure that our borrowers are familiar with the current market trends, and that their plan is consistent with local market activity.
– Clay (clay@privatemoneysource.com)
Clay is Vice President of Fairfield Financial, a primary source for private money since 1964. Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX. To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php
Tags: Commercial loans, construction loans, hard money borrowing, hard money brokering, hard money loans, private money borrowing, private money brokering, private money loans, Quick flip loans, real estate investing, rehab loans, REO funding, Short sales
