Full Fix and Flip Financing

The entire project finances are split between all the project costs, and the project income. The project costs are ALL the expenses for the project. This includes the Purchase and Renovation costs, as well as ALL the additional Project Costs and Fees. The Full Costs and Fees include the Purchase Costs such as the Appraisal, Inspection, Insurance, and Attorney fees. Holding Costs such as the Utility, Home Owner Association, and Loan Interest payments. And the Sale Costs such as the Real Estate Agent commission fee. All of the Costs and Expenses, as well as the Earn are on the Project side.

On the Capital side we have the different ways to pay for the Project. We have the different Financing options such as CASH, a LOAN, EQUITY, and a MIX of the possible options. With CASH, the investor has enough CASH of their own available to pay for ALL of the project expenses, fees, and costs, and uses it to do so. Keeping all of the Profit when the Projects is completed and sold. It’s good to note that the Sale Costs, while being a Cost, are paid from the Sale Proceeds, and not part of the money invested but rather come out of the Project Earn and Profit.

With a LOAN, part of the Project Cost is borrowed, with the Investor using their own available CASH to pay for the remaining costs and expenses. Typically, the LOAN is for a part of the Purchase and Renovation Cost. The source for the LOAN may be a Hard Money Lender, or a Private source such Friends and Family. The Interest paid for the LOAN is part of the Project Holding Costs, and the investor keeps the Profit when the Project is completed and sold. Typically, Hard Money Lenders will provide 60 – 90 % of the Purchase and 100% of the Renovation Costs. The Investor provides 10 – 40 % of the Purchase Amount, and the Purchase and Holding Costs.

A variation is when there is a LOAN for the majority of the Purchase and Renovations Amount, and the Investor borrows an additional LOAN for the 10 – 40 % GAP in the Purchase Amount. The Investor uses their own CASH to pay for the Purchase and Holding Costs. If the Investor is able to negotiate it, this additional GAP LOAN may be for the entire remaining amount NOT covered by the initial LOAN, including the Purchase and Holding Costs.

An EQUITY investment is when the Investor, instead of borrowing a LOAN, partners with another Investor who provides their CASH in addition to the Investor’s CASH, according to a negotiated work, investment, and Profit split. Depending on the situation and arrangement, the EQUITY partner may provide ALL of the CASH necessary for the Project. The Profit split may include some amount of interest for the CASH invested, and a percentage of the remaining Net Profit.

The CASH, LOAN, and EQUITY investment options can be MIXED together to achieve the best possible results, depending on the situation and what all the parties agree to. Take particular care with the Project Analysis to make sure there is a healthy Profit to keep everyone’s investment safe, AND that there is a sufficient Profit to make the entire Project worth Everyone’s, and especially the Investor’s, time.