A Bay Area real estate investor used private money fix and flip financing to remodel a San Francisco home.
One of the financing programs First Capital Trust Deeds has been originating more frequently is the high-leverage, low-upfront cost purchase/rehab financing. This is an excellent program for the real estate investor who wants to fully maximize the leverage (mortgage debt) on their fix and flip project.
This makes sense for our clients that are in the higher priced areas such as San Francisco. In San Francisco there are well-sourced acquisition prices in the current market that often over $1,000,000 and the resale prices can approach or even exceed $2,000,000. Markets like this are good for experienced real estate investors borrowing as much as possible at 9.50% to 11.00%. Moreover, the investor should be able to make a significant profit upon selling the property, barring any unforeseen hiccup in the permitting and renovation process.
Using the fix and flip financing program, the lender will lend up to 80% of the purchase price and lend 100% of the total construction costs.
For this opportunity in San Francisco, the borrower didn’t want to go all the way up to the 80/100% leverage threshold and elected to use 75/80% financing. House flippers in San Francisco know that these projects generally go 12 months, if not 15 months. So it made more sense to put additional cash into the project since they’d most likely be paying interest for the entire year. Fortunately the development (fix and flip) deal penciled out pretty well even with the carrying costs on a $1,116,000 hard money loan so they decided to pull the trigger on the hard money financing.
Purchase/Rehab Financing Terms:
- $876,000 First Mortgage – 75% Acquisition Financing
- $240,000 Rehab Financing – 80% Construction Costs
- 12-Month Term
- No Prepayment Penalty