It’s vital to plan for challenges that can arise during the renovation process that may require financial resources and quick decision-making.

When you invest in a fix-to-flip property, having a flexible, reliable, and well-connected private lender by your side can make all the difference. Because challenges invariably arise during the renovation process, it’s vital to plan as much as possible for them and to choose your lender thoughtfully, especially in a volatile market with tight inventory considerations.

Part of the loan application process with a private lender like Rehab Financial Group (RFG) includes estimating renovation costs and submitting a solid business plan. The best loan option to maximize your profit potential is a loan from a lender that provides quick approval and helps you maintain as much liquidity as possible—for both current and future projects. A recent project in Fort Myers, Florida, demonstrates how to effectively plan your flip and present your intentions to a prospective lender.

Details of the Property Purchase

In this case, an investor was looking to purchase and flip a single-family residence totaling 2,649 square feet, with two bedrooms, three baths, and an in-ground pool. The property had been flooded during Hurricane Ian.

The neighborhood was centrally located, with shopping, schools, and local conveniences within proximity to Downtown Fort Myers, Fort Myers beaches, and Punta Gorda International Airport. If priced realistically and marketed professionally, post-renovation marketing time was estimated at under six months. The appraisal report noted that growth in the area was expected to continue due to the availability of older homes Hurricane Ian also damaged and general market demand.

The purchase price was $695,000, and a proposed renovation budget of $202,100 was presented to the lender. The “As-Is” Market Value in the appraisal report was $795,000.

Scope of Renovation Work Proposed

For homes in upscale markets like Fort Myers, renovations need to be tasteful but also respect a reasonable resale budget. Seeking the opinion of a local interior decorator can be a valuable move for investors in markets like this. This project’s detailed Scope of Work covered only cosmetic repairs, including renovating three bathrooms and the home’s kitchen. Outside, a new square pool and spa would be built, the entire exterior would receive new stucco, and some roof repairs were needed. Structurally, the home was sound.

All in, the project acquisition and rehab totaled $917,310. With significant increases in construction materials and labor costs affecting the market, estimating construction costs took time. In this situation (and most others), RFG requires a 10% contingency for unforeseen overages.

How the Finances Worked

RFG generally offers 100% of the purchase and rehab up to 65%, 70%, or even 75% of the ARV, depending upon the borrower’s overall credit, liquidity, income/cash flow, and experience. The appraisal considered all these repairs to estimate that the home’s After Repair Value would be $1,175,000.

The borrower was approved for a 75% ARV (after repair value) loan in this case. Due to this loan request being 78% ARV and RFG maxed at 75%, the borrower put down $36,000 (5%); points and fees were $33,288; and $27,814.44 was required as a three-month payment reserve.

The out-of-pocket borrower cash needed at closing was $97,912.19. The RFG 100% financing loan requires no down payment. Assuming the standard 10%-20% down payment requirements of other lenders, this would have been approximately $150,000 to $176,250. By choosing Rehab Financial Group for financing, this investor saved between $53,000 and $78,000 at the closing table.

The Bottom Line

Not all lenders or all loans offered match everyone’s needs. RFG requires more documentation than other non-Income verification lenders, but the payoff is 100% financing. Investors must research, get a good handle on the renovations needed to improve a home, and deliver the value they want when selling. It is essential to have a detailed plan illustrating the renovations to be undertaken and accurate estimates of their potential cost. It takes a little time upfront and some good research and planning, but it all pays off when you find the right loan from the right lender.

  • John Santilli

    John joined RFG in July 2019, and is responsible for all opportunities connected to the growth of RFG. He is focused on expanding the company’s sales channels to maintain their position as a leader in rehab financing. Prior to joining RFG, John had 25 years of lending and marketing executive leadership experience across multiple private and public marketing-dependent companies. He had managed companies from start-up to maturity ranging from $2.5M to over $50M in annual revenue. John earned a Master’s Degree in Management from the University of Pennsylvania and a Bachelor’s Degree in Business Administration with a concentration in Marketing from Drexel University. He currently resides in Wynnewood, PA, with his three children, and enjoys family first, live music, and finding the perfect balance of work hard/play hard.

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