13 Dec

The Property Flip

Mortgage Tips

Posted by: Kim Lindsay

Flipping properties can be a very lucrative business — if done correctly!
Many clients have the vision and come across great opportunities, but their main obstacle is often CASH — finding the funds to get started.

Typically when you are purchasing a property that you do not intend to occupy as your primary residence, you’ll need a minimum 20% down payment to proceed (based on the purchase price OR current appraised value of the home, whichever is lower). If your credit, income, or “debt ratios” don’t fit standard guidelines, there are more flexible lenders out there, but prepare to increase your down payment from 20% to 25-40%.

In addition to credit, income/employment, the property itself must also be in fairly good condition for a bank to provide financing.

If the property is a ‘fixer upper’, ‘handy man special’, ‘foreclosure’, ‘former grow-op’, ‘under construction’, ‘environmental factors’, etc etc etc, it WILL be an issue for the lender … BUT it’s usually in these situations that a buyer can snag a good deal for a flip!

Introducing, THE PROPERTY FLIP MORTGAGE, an exclusive financing solution that allows borrowers to leverage their real estate up to 80% of the AFTER-RENOVATED Property Value and get in with as little as $10,000 DOWN PAYMENT!

In other words, keep the rest of your capital for the renovation costs and then SELL for a profit OR refinance the renovated property (if the property will be kept as a rental).

This type of mortgage could also be used if you were looking to renovate your own property and then sell at a much higher price — you’ll be in a position to make much more on the sale of your property to help with your next purchase.

Here is an example to illustrate how these clients kept $50,000 in their pocket to complete a successful flip:

Purchase Price: $300,000
Down Payment (20%): $60,000
Cost of Renovations: $30,000
Total OUT OF POCKET Expenses: $60,000 + $30,000 = $90,000 (plus carrying costs)
Improved Property Value $400,000

Purchase Price: $300,000
Down Payment: $10,000 (leaving $50,000 in your pocket for the improvements!)
Cost of Renovations: $30,000
Total Out of Pocket Expenses: $40,000 (plus carrying costs)
Improved Property Value: $400,000

Our lender conducts their own in-house No Fee Valuation to save you money and take advantage of quick closings, plus their mortgage is OPEN (no payout penalties when the property sells). They also provide a fantastic flip analyzer spreadsheet which is designed to calculate and budget all the costs and variables in a flip to ensure the deal is profitable and to decide:
A) If based on a certain profit objective, what the maximum purchase price can be for the property, or
B) If it is profitable enough at a certain purchase price

Profitability is the first underwriting filter; will the borrower make money?
If the answer is YES and the deal makes sense, let’s get to work!

Give me a call find out more.

Kim Lindsay
Mortgage Broker