One of the most common questions rehabbers and house flippers ask is, “How much down payment will I need to flip a house with a hard money loan?”
The simple answer is that an investor should expect a 20% down payment, give or take 5-10% on either side.
Each investor and project has their own unique characteristics that influence down payment requirements, including:
Borrower experience and track record (or lack thereof)
Borrower liquidity and financial strength (or lack thereof)
Project size and scope
A $10 million acquisition with a $4 million rehab budget is much different than a $150,000 purchase price with a $25,000 renovation cost.
Project Timeline
Lengths can range from 3-24 months. The longer the project, the greater the exposure to market conditions and greater the risk to the lender.
FCTD has originated private money fix and flip loans for experienced borrowers where 75% LTV on the purchase (25% down payment) was the best option we could find due to the size and scope of the project. One instance was a $3 million purchase price with a $1.5 million rehab budget on an 18-month loan.
For the same borrower doing a cosmetic fixer-upper, FCTD secured a 10% down payment fix and flip private money loan (90% LTV on the purchase and 100% LTC on the rehab). The difference was that the borrower sourced the property well — through an off-market probate sale in Cupertino — and ordered all the new material, including the high-end kitchen cabinets and appliances, during the 60-day escrow.
As soon as escrow closed, the materials arrived and the renovation wrapped up within 7 weeks. Ten weeks later, a cash-buyer from Facebook bought the property.
Summary
The down payment for a fix and flip project depends on both the borrower and the project itself. If you have a big, complicated fix and flip project, expect a higher down payment, in the 20-25% range. And, if you have a cosmetic fixer upper in a highly desirable market like Cupertino, CA — where cash buyers are common — you can adjust your down payment expectations to 10-20% on an 80-90% LTV purchase money loan.