One of the biggest concerns about flippers in a new home is what happens when they can’t sell their flips.
That’s a legitimate fear … but you don’t have to have it if you just take some precautions with your lender in advance.
However, doing this depends a lot on what kind of loan you have in your home.
Here are two scenarios you may face and how to deal with them.
1. Private lender Lender
When working in Private moneylender – This could be a family member, friend, or business acquaintance. You set the conditions.
Therefore, when you write that promissory note, you will personally guarantee the loan. I do this with all notebook holders. I personally guarantee it depending on the situation.
Equity trading is a little different, but purely speaking, it’s usually a personal promise. It is very important to me to make sure the lender is well protected.
This is because I don’t want to be in a position to repay the memo just because it’s been over 12 months. Therefore, what we usually add to the provisions is a promissory note that includes a “when real estate is sold” clause.
The idea is not to make you lazy or give you a false sense of security, but to protect you if the hinges don’t work.
Never forget to turn it over in the house, The time is money And you wouldn’t want to live in a property for more than 6 months.
This provision only gives you a little extra layer of protection to know that you will not be violently seized by your lender.
2. Hard money lender
If you are trading Hard money lenderThe rules are completely different … Therefore, this section will be a little longer.
When you borrow hard money, hard money lenders make rules, they are professional lenders like banks and most of them really know theirs.
Some home flippers are eager to fund their first deal with a hard money lender, become too aggressive and set a six-month condition.
Big mistake …
Never ever, ever Get into a 6-month loan with a hard money lender.I don’t recommend them … it’s not just enough time, especially When you first start playing..
It’s perfectly plausible that you can buy real estate and it may take you more than 60 days just to rehabilitate it. You don’t want to spend too much time rehabilitating, but it can happen.
If rehabilitation takes 60 days, it will take a full 2 months. You can then list it and start the sales process.
However, towards the end of the year, it took several months before the sales season came. Or you can sell it right away. Anyway, it still takes 30 to 60 days to close.
Do you know how 6 months will pass in a blink of an eye?
The most important question to ask hard money lenders is …
For hard money loans, it will always be longer than the 6 month period. Always try to get at least 12 months from your hard money lender.
Then, in doing so, first ask this important question.
“Mr. Hard Money Lender, I want to close this transaction very quickly, within 4-5 months, but if something goes wrong or the cost is exceeded, 12 What if I don’t sell within a month? “
The words to that effect …
You really want to know what he thinks if he doesn’t sell at 12 months.
What is he doing at that point?
Ask that question, then close your mouth and look at what they say.
Hard money lenders may say they seize. In that case, you need to be very careful with this lender …
Or they may say:
“We like you. We don’t want to see you fail. We lend you money and make damn good money. At that point we will consider the deal and discuss the extension. increase.”
Sounds more promising, but … get it in writing just in case.
Honestly, along with one of my hard money lenders, I don’t think I have this anywhere in our docs. But I know he’s not going to seize me. He is not interested in doing that. He would be killing a goose that lays golden eggs, so to speak.
With this hard money lender, I trust him and we have a strong relationship that has worked on dozens of flips.
But you may not know your lender. In that case, you need to look into his eyes and ask the above questions to see what the reaction will be. This should be done live, face-to-face.
Do whatever you can to get the clause permitting the extension of that 12-month memo. It’s much better to be proactive than to respond to these things.
Knowing these strategies, having these conversations with your lenders, and getting them to understand what is possible is important to your success as a house flipper.
I always prefer to over-offer and neglect promises to all customers in principle. I also like to be as transparent as possible at all times. Do the same for the lender to get to know all the potential pitfalls of what can happen.
And this is especially true for hard-money people who really know the game.They know what can happen Turn home when things go wrong… And be aware that some people will try to take advantage of it.
One of the best things you can do to prevent this is to always ask what to do if things get worse. It’s one of the fail-safe ways to protect yourself in the unlikely event of a flip problem.
If you get this far, leave a comment below! What do you think I omitted? Leave a comment and share your opinion — or ask me whatever you want about flipping the house!