About

FlipFunds:  Hard Money Loans for Real Estate Investors

FlipFunds Southwest makes hard money business loans to flippers and other investors who rehab properties for resale or rental.  Each of our loans is secured by a first lien on the property being rehabbed, resold or rented.  We prefer purchase-money loans, but will sometimes loan on a property the investor already owns.  We make business loans only—no loans on owner occupied properties. FlipFunds SW operates mainly in Texas, but we also have affiliations in Colorado and we are looking for attractive deals there. We focus on the middle of the market: properties that can be purchased and rehabbed for $250,000 and under.

Fast, flexible, knowledgeable hard money financing

FlipFunds SW can move quickly and flexibly on a hard money rehab or rental loan within our parameters.  We can close the right deal about as quickly as the title company involved will allow.  Terms can vary depending on the attributes of the particular transaction.

FlipFunds SW works closely with our broker, Urban Coyote Funding . Urban Coyote has over a decade of experience as a flipper, broker and lender. Urban Coyote evaluates flip deals and advises us and prospective borrowers on the viability, advisability and structure of deals.

The market:  opportunities and challenges

The house-flipping business has gone mainstream nationwide and in Texas, including markets in North Texas.   Casual observers may link the growth in the business to to a proliferation of flipping shows on basic cable.  You can check out a non-comprehensive list of these shows in our links section.

But flipping is more than trendy television fodder.  The business stands on a solid economic foundation. Supply of housing has not kept up with demand.  As discussed in this research article from the Texas A&M Real Estate Center, the market is particularly tight for affordable middle-class houses in Texas’s metropolitan markets with high job growth.  The middle-class market consists largely of resale homes because new houses tend to be more expensive.  Resale inventory is moving fast in the affordable range of the market in the state’s major metropolitan areas.

These market conditions create significant opportunities for flipping entrepreneurs, but can also pose challenges.  The healthy market for affordable homes creates favorable conditions for selling homes that are properly repaired and remodeled for resale.  On the other hand, the hot market can make it more expensive for flippers to purchase homes to repair and resale.  This has been a particular issue in the Austin market, according to recent reporting.

Our approach to hard money lending

FlipFunds works with Urban Coyote and other brokers and affiliates who have years of experience executing rehab-resale projects and in finding hard money financing for flip deals.  Our evaluation of a deal for financing can double as a reality check for the flipper.  We can confirm a flipper’s evaluation of the right deal.  We can also flag potential issues and problems that may jeopardize the profitability of a deal, and in some cases help the prospective borrower avoid a bad deal or find and focus on a better one.

So if you are looking to fund a loan on a flip project, please call or email us and we’ll see if we can help.  Thanks for checking us out!

 

Blog

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How changes in tax law for “pass through” companies might affect flippers and rental owners

In late January, Congress and the president enacted their new tax law.  The new law effects “the most drastic changes to [the] US tax code in 30 years,” according to The Guardian.   In previous posts, we discussed how these changes might affect the middle of the housing market in Texas and Colorado.  Today we discuss how …

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New tax law passes; our analysis of its impact on mid-market housing remains largely the same

This post updates our prior offerings on the effect of the new tax law on mid-market housing prices.  In particular, we continue to focus on mid-market investors in Texas and Colorado.  Both houses of Congress passed the final tax bill just before the holidays, and Trump signed it into law.  The new law modifies two …

Continue reading “New tax law passes; our analysis of its impact on mid-market housing remains largely the same”

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How proposed tax changes may affect flippers working the middle of the Texas market

Part II–The Senate bill Since our first post on the potential impact of proposed tax bills on real estate investors working the middle of the housing market in Texas and Colorado, Congress has taken further action.  Most importantly, the Senate republicans have proposed their own bill.  The House Ways and Means Committee also passed a …

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Recent Hard Money Loans

Recent Hard Money Loans by FlipFunds SW

FlipFunds SW has actively sought and funded investor loans in 2017, including several recent hard money loans closed in Texas.  Here are some summaries of deals that have closed recently:

May 2017, suburban Dallas

Investor purchased property for approximately $115,000.  FlipFunds SW funded approximately $102,000 at closing, then funded another approximately $18,000 as investor documented and permitted inspection of repair and remodeling work.  Borrower funded approximately $13,500 in cash at closing toward property and closing costs.  Investor sold property and paid off loan in August 2017 (three months before expiration of the six-month initial term).

May 2017, Fort Worth

FlipFunds funded approximately $64,000 on rental property investor already owned.  Loan remains active (one-year initial term).

June 2017, suburban Dallas 

Investor purchased property for approximately $119,000.  FlipFunds funded approximately $105,000 at closing, then funded another approximately $27,500 for repairs and remodeling as investor documented and permitted inspection of repair and remodeling work.  Investor funded approximately $7,000 in cash at closing toward property and closing costs.  Loan remains active (six-month initial term).

June 2017, Dallas 

Investor purchased property for approximately $53,000.  FlipFunds SW funded approximately $45,500 at close, and agreed to fund an additional approximately $36,500 for repairs.  Investor funded approximately $12,000 in cash at closing toward property and closing costs.  Investor was able to sell the property at a substantial profit without repairing or remodeling.  So investor repaid the loan in August 2017 (four months before expiration of the six-month initial term), including three months’ minimum interest.

July 2017, Ft. Worth 

Investor purchased property for approximately $72,500.  FlipFunds SW funded approximately $65,000 at close, with an agreement to fund up to approximately $12,500 more for repairs and remodeling.  Investor funded approximately $13,500 in cash at closing toward property and closing costs. Investor sold the property and paid off the loan in July 2018.

July 2017, suburban Dallas

Investor purchased property for approximately $132,000.  FlipFunds SW funded approximately $127,000.  Investor funded approximately $8,000 in cash at closing toward property and closing costs.  Investor sold the property and paid off the loan in December 2017.

August 2017, suburban Dallas

Investor purchased property for approximately $83,000.  FlipFunds SW funded approximately $75,500 at closing, with an agreement to fund up to approximately $14,000 more for repairs and remodeling.  Investor funded approximately $16,000 in cash at closing toward property and closing costs. FlipFunds has funded three draws totaling approximately $14,000 after investor documented and permitted inspection of repair and remodeling work.  Investor sold the property and paid off the loan in January 2018.

October 2017, Austin   

Investor purchased property for approximately $80,000 to rent and hold for resale–no repairs necessary.  FlipFunds SW funded approximately $80,000 at closing.  Investor paid off loan in December 2017.

November 2017, suburban Dallas

Investor purchased property for approximately $125,000 to fix and flip.  FlipFunds SW funded approximately $105,000 at closing, with an agreement to fund up to an additional approximately $15,000 for repairs.  Loan remains active (initial nine-month term).

November 2017, mid cities

Investor purchased property for approximately $100,000 to fix and flip.  FlipFunds SW funded approximately $80,000 of the purchase.  FlipFunds SW and Investor later modified the loan to add another approximately $8,000, increasing the total balance to approximately $88,000.  Investor sold the property and paid off the loan in July 2018.

December 2017, Dallas

Investor purchased property for approximately $200,000 to fix and flip.  FlipFunds SW funded approximately $177,000 of the purchase and agreed to fund one additional draw of approximately $12,000.  Investor funded the part of the purchase not covered by the additional funding.  Investor will also fund repairs not covered by the draws.   Investor sold the property and paid off the loan in March 2018.

December 2017, suburban Ft. Worth

Investor purchased property for approximately $80,000.  FlipFunds SW funded approximately $62,000.  Investor funded the remainder of the purchase price and will fund repairs.  Investor sold the property and paid off the loan in May 2018.

January 2017, mid cities

FlipFunds SW funded approximately $102,000 on a commercial property occupied under a triple-net lease.  Borrower intended to use proceeds to acquire a similar commercial property.  Loan remains active (one-year term).

January 2017, Waco

Investor purchased property for approximately $35,000.  FlipFunds SW funded approximately $31,000.  Investor may fix up property for sale or may hold and rent.  Investor sold the property and paid off the loan in May 2018.

March 2018, eastern DFW metroplex

Investor purchased property for approximately $75,000.  Flipfunds SW funded approximately $70,000 at closing and agreed to fund another approximately $15,000 in repair draws.  Investor sold the property and paid off the loan in July 2018.

April 2018, southeastern DFW metroplex

Investor purchased property for approximately $155,000.   Flipfunds SW funded approximately $135,000, all at initial closing.  Loan remains active (one-year term).

April 2018, mid cities

Investor purchased property for approximately $95,000.  Flipfunds SW funded approximately $84,000 at closing and agreed to fund another approximately $21,000 in repair draws.  Investor sold the property and paid off the loan in October 2018.

April 2018, suburban Dallas

Investor purchased property for approximately $100,000.  Flipfunds SW funded approximately $92,000, all at initial closing.  Investor will fund its own repairs.   Investor sold the property and paid off the loan in October 2018.

May 2018, mid cities

Investor purchased property for approximately $65,000.  Flipfunds SW funded approximately $62,000 at initial closing.  Flipfunds SW additionally funded an escrow account with a balance of approximately $25,000.  Investor will draw funds from the escrow in approximately three installments as repairs are competed, inspected and approved.  Investor sold the property and paid off the loan in August 2018.

May 2018, San Antonio

Investor purchased property for approximately $80,000.  Flipfunds SW funded approximately $77,500 at initial closing.  Flipfunds SW additionally funded an escrow account with a balance of approximately $12,500.  Investor will draw funds from the escrow in approximately three installments as repairs are competed, inspected and approved.  Loan remains active (one-year term).

May 2018, San Antonio

Investor purchased property for approximately $162,000.  Flipfunds SW funded approximately $127,000 at initial closing.  Flipfunds SW additionally funded an escrow account with a balance of approximately $32,000.  Investor will draw funds from the escrow in approximately three installments as repairs are competed, inspected and approved.  Loan remains active (one-year term).

August 2018, San Antonio

Investor purchased property for approximately $120,000.  Flipfunds SW funded approximately $110,000 at initial closing.  Flipfunds SW additionally funded an escrow account with a balance of approximately $8,000.  Investor drew funds from the escrow in as repairs are competed, inspected and approved.  Loan remains active (one-year term).

August 2018, San Antonio

Flipfunds SW refinanced a prior loan, providing approximately $210,000 in funding.  Loan remains active (three-year term).

August 2018, suburban Dallas

Investor purchased property for approximately $132,000.  Flipfunds SW funded approximately $115,000 at initial closing.  Flipfunds SW later funded approximately $17,000 for completed repairs.  Loan remains active (one-year term).

August 2018, San Antonio

Investor borrowed approximately $112,000 to fund repairs on a rental property.  Flipfunds SW funded approximately $77,000 at initial closing and also funded an escrow account with a balance of approximately $25,000.  Investor is drawing funds from the escrow as repairs are competed, inspected and approved.  Loan remains active (one-year term).

August 2018, Ft. Worth

Investor purchased property for approximately $133,000.  Flipfunds SW funded approximately $127,000 at initial closing.  Flipfunds SW additionally funded an escrow account with a balance of approximately $12,000.  Investor will draw funds from the escrow in as repairs are competed, inspected and approved.  Loan remains active (one-year term).

September 2018, Dallas

Investor purchased property for approximately $117,500.  Flipfunds SW funded approximately $107,000 at initial closing.  Flipfunds SW agreed to fund an additional approximately $7,000 upon completion and inspection of repairs.  Loan remains active (one-year term).

October 2018, Mid Cities

Investor purchased property for approximately $135,000.  Flipfunds SW funded approximately $125,000 at initial closing.  Loan remains active (one-year term).

October 2018, Dallas

Investor purchased property for approximately $83,000.  Flipfunds SW funded approximately $83,000 at initial closing.  Loan remains active (one-year term).

The interest rate on most of the loans listed is (was) 12%.  Monthly payments on all of these recent transactions are interest-only; principal is repaid at payoff.  Rates and terms on a particular transactions may vary based on our evaluation of the loan-to-value ratio, borrower liquidity, and other factors.  FlipFunds SW has co-investors on some of its loans.

 

Background Info

FlipFunds’ principal has been involved in making commercial hard-money rehab loans since 2009.  Principal owns interests in active loans in the Houston and San Antonio areas and in Arlington, and made recent hard money loans now paid off in Arlington and suburban Ft. Worth.   

 

Key Considerations

Factors in evaluating flip (rehab) deal for hard money financing

FlipFunds SW and our advisers and associates will consider a number of factors in evaluating a flip (rehab) deal for hard money financing.  These factors largely overlap with the elements that make a profitable deal for the investor.  So consideration of these factors benefits both FlipFunds SW and our investor/customers.  Here is a list of some of the more important factors we consider.

Loan-to-value ratio

What is the value of the property relative to the loan amount?  The property is the collateral securing the lender’s payment.  So loan-to-value drives the decision of whether to lend hard money.  FlipFunds SW looks for deals where the amount of the loan will not exceed 65-70% of the property value.  For properties needing significant repairs or remodeling, lender and borrower can sometimes maintain the required loan-to-value ratio by staging release of funds.  For example, a reasonable estimate of the property value at closing may be $200,000, while the anticipated value of the property after repairs might be $250,000.  To maintain the loan-to-value ratio, FlipFunds and the investor may structure the loan to fund $135,000 at closing and another $33,500 in a series of draws as repairs are completed.  Each draw will fund only after professional inspection of repairs to make sure they are properly completed.  This process can allow the lender to maintain loan-to-value ratio while still allowing the investor to fund and complete repairs needed to maximize return on the property.

Insurance

FlipFunds SW will require the investor to provide proof of hazard insurance at closing.  The investor will need to maintain that insurance as long as the loan is outstanding.  Obviously, covering the property against catastrophic loss benefits both investor and lender.

Investor liquidity

A hard-money lender funds most of the investment in the property and repairs, but not all of it.  In most deals, the investor will contribute some cash at closing to pay the equity portion of the purchase price and closing costs.  The investor will also fund part of the repairs, pay insurance premiums and utilities, make interest payments on the loan, and pay other day-to-day costs.  If the property is held past a property-tax deadline, the investor will also pay property taxes.   The investor must be able to show enough liquidity to contribute some cash at closing and pay expenses until the property is ready for resale.

Property taxes and first-lien position

FlipFunds SW will require a first-lien position at all times while the loan is outstanding.  This means the investor will have to pay property taxes within a reasonable time after assessment to avoid property-tax liens.  And property-tax loans from other lenders are forbidden.  Property-tax loans jeopardize the lender’s first-lien position and violate the loan documents.  This factor intertwines with the investor-liquidity factor.  Investor and lender should ascertain from the outset that with the proceeds of the hard-money loan and the investor’s own resources, the investor will have the funds to see the investment through without turning to other funding sources.  This inquiry benefits not only the lender, but also the investor.  A property overburdened by debt is likely to cost the investor its profit opportunity and perhaps its equity as well.

Repair difficulty

Some repairs are more difficult than others–extensive foundation work, for example.  Logically, the more difficult the repair, the more likely cost overruns, and the more expensive they may be.  For more difficult repairs, investor and lender may both benefit from building slack into the budget to leave room for cost overruns.  If the budget cannot tolerate the slack and still leave room for a nice profit, investor and lender may decide to move on and look for a safer deal.

Restrictions

Federal and State regulations and other factors prevent hard-money lenders like FlipFunds SW from making loans on owner-occupied properties or other properties purchased for “personal, family or household use.”  We make loans only for commercial purposes to investors buying for profit.  As a condition to the loan, the investor will be required to sign an affidavit at closing affirming that the investor is taking the loan for commercial purposes.  The affidavit will confirm that the investor will not live in the property, declare it a homestead or use it for “personal, family or household” purposes.  (Disclaimer:  This is a layman’s description; the legal document will include different and additional language and the language of the legal agreement will be binding.)  The deed of trust (Texas mortgage document) will also affirm that the property will not be a homestead.  FlipFunds SW takes these restrictions seriously and will not abide their violation.

Hopefully, the factors we consider in evaluating a flip (rehab) deal for hard money financing will provide some investors with a new perspective on some of the deals they see.  If you have any questions or want to discuss a specific deal further, please contact us.