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Hard money answers without the runaround.

Getting Started

  • A hard money loan is a type of short-term financing option typically used in fix and flip deals. It is often sought by borrowers who need quick financing and are facing issues with banks because they won’t lend on those deals or because the borrower may not qualify as per the bank’s underwriting requirements.

    • Asset-Based: Hard money loans are primarily based on the value of the property being used as collateral, rather than the borrower's creditworthiness or financial situation. The lender evaluates the property's market value and condition to determine the loan amount.

    • Short-Term: Hard money loans have shorter repayment terms compared to traditional bank loans. They typically range from a few months to a few years. This makes them suitable for real estate investors who plan to renovate or resell a property quickly.

    • Higher Interest Rates and Fees: Hard money loans often carry higher interest rates and fees compared to conventional loans. Lenders charge higher rates to compensate for the increased risk associated with these loans.

    • Quick Approval and Funding: Unlike traditional bank loans that involve a lengthy approval process, hard money loans can be approved and funded quickly. This is beneficial for borrowers who need immediate access to capital to take advantage of investment opportunities or address time-sensitive situations.

    • Flexible Approval Criteria: Hard money lenders focus more on the value and potential of the property rather than the borrower's credit history or income. As a result, borrowers with poor credit or unconventional income sources may still qualify for a hard money loan.

    • Loan-to-Value (LTV) Ratio: Hard money lenders usually provide loans based on a percentage of the property's appraised value or purchase price, known as the Loan-to-Value (LTV) ratio. The LTV ratio can vary depending on factors such as property type, location, and borrower experience.

  • In Houston, hard money loans for real estate investors typically carry interest rates between approximately 9% and 15%, with loan terms ranging from 6 to 24 months. Loan-to-Value (LTV) ratios commonly reach up to 75%, while Loan-to-Cost (LTC) ratios can extend as high as 90%. Origination fees generally fall in the 2% to 5% range. These loans are most often structured with interest-only payments and, in many cases, do not include prepayment penalties. Final terms vary by lender and are driven by deal structure, asset quality, and borrower experience.

  • Hard money loans are available to both individuals and businesses. The primary qualification is the value of the property you will renovate. While your credit history is considered, it is not the main determining factor. Private lenders, including ourselves, focus on the property's potential value and your ability to repay the loan.

  • A "lipstick flip" is a flip that focuses on cosmetic improvements and quick, budget-friendly renovations. Here are some common features of a lipstick flip:

    • Cosmetic Enhancements: A lipstick flip primarily involves cosmetic upgrades aimed at improving the overall appearance of a property. This may include painting the interior and exterior, installing new flooring, updating fixtures, and refreshing the curb appeal.

    • Minimal Structural Changes: Unlike extensive renovation flips, a lipstick flip typically avoids major structural changes or alterations to the property's layout. The focus is on making surface-level improvements without significant modifications to the floor plan.

    • Affordable Budget: Lipstick flips often have a lower budget compared to larger-scale renovations. The goal is to make cost-effective upgrades that can quickly transform the property's aesthetics and increase its market appeal.

    • Quick Turnaround: The timeframe for a lipstick flip is typically shorter than other types of flips. The objective is to complete the renovations efficiently, allowing for a faster listing and sale of the property.

    • Focused on Market Trends: A lipstick flip takes into consideration current design trends and popular buyer preferences. This ensures that the property has a modern and appealing look, attracting potential buyers in the market.

    • Attention to Details: Despite the smaller scope of work, a lipstick flip still pays attention to detail. Attention is given to elements such as lighting, staging, and minor repairs to create a polished and inviting atmosphere in the home.

    • Targeted Marketing: When the property is ready for sale, a lipstick flip often involves targeted marketing efforts to reach potential buyers who appreciate move-in ready homes with updated aesthetics.

    It's important to note that the term "lipstick flip" may vary in its interpretation or usage, and different investors or flippers may have their own specific approach when it comes to this type of flipping strategy.

    • Find lots of properties.

    • Do lots of estimates.

    • Make lots of offers.

    • Line up financing.

    • Analyzing deals under contract.

    • Do the renovations.

    • Market and sell.

  • To start the property buying process in Houston, you should:

    • Check your sources of capital. In most cases, you will need a loan.

    • Banks don’t lend for flips, so you will need to get approved for a private loan with a private lender.

    • Set a clear property selection criteria. We offer classes on this topic. Click here for classes.

    • Find a trusted real estate agent or wholesaler to guide you through the process.

    • Begin searching for properties that meet your criteria.

  • Depending on your situation, you may use one or a combination of the following sources of capital for your fix and flip deals:

    • Hard money loans: This is the most common type of financing for fix and flip projects.

    • Partnerships or joint ventures: Collaborating with other investors can help pool resources and spread financial risk.

    • Using a Home Equity Line of Credit (HELOC).

    • Use equity from other assets, such as the cash value of your whole life insurance or variable universal life insurance, your securities portfolio, or your 401(k) or retirement plan.

    • Use equity from other investments: The most common example is using rental properties as collateral to take a revolving line of credit. This is essentially a HELOC but for investment properties.

  • Expect to pay interest rates between 12% to 14%. That’s what most private lenders charge in this market. Then you have application fees, underwriting fees, processing fees, administrative fees, origination fees and extension fees.

    No lender is the same. Some charge more than others. Some have more fee items than others.

  • It's essential to review your Closing Disclosure to understand the specific costs associated with your purchase. In most situations, you can expect your closing fees to include:

    • Appraisal fees

    • Inspection fees.

    • Title insurance.

    • Escrow fees.

    • Document preparation fees.

    • Recording fees.

    • HOA transfer fees

    • Survey

    • Loan origination fees.

  • The cost of property renovations in Houston can vary depending on the scope of work and the property's condition. We recommend you talk to contractors and obtain multiple quotes to get a better idea of the costs involved. We have a workshop on this. Click here for classes

  • Yes, you can sell a property "as-is" in Houston, but it's important to note that it may affect the selling price. Just because you found a property below market value, it doesn;t necessarily mean that you can turn around and sell it at market value. You still have closing costs, holding costs and selling costs. In addition, you need to consider that buyers are more likely to pay a premium for properties in good condition. With that said, selling "as-is" can be suitable for you if you find a deeply discounted property where the numbers are good enough that you can make a profit without the time and expense of renovations.

  • Houston has property taxes that should be factored into your budget. Property taxes are based on the assessed value of the property and can vary depending on the location. It's advisable to research the current property tax rates and consult with a real estate professional or tax advisor for accurate estimates.

  • With a hard money loan, you can expect to close on your flip anywhere between 7 to 14 days. When you sell your renovated property, there is a very high probability that your buyer will need a loan, and therefore the sale of your flip, in Houston, on average, takes around 30-45 days from the time an offer is accepted to closing. However, this timeline can be influenced by factors such as financing, negotiations and inspections. Working closely with your real estate agent can help ensure a smoother and more efficient process.

  • Yes, and this is a reason why our most successful clients are focusing on properties that they can sell for under a certain amount, such as under $500,000, where there is an abundance of down payment assistance programs and low down payment programs.

  • Profit Potential: By purchasing distressed or undervalued properties, renovating them, and selling them at a higher price, you can make a significant return on your investment. Successful flips can generate quick cash flow and sizable profits.

    Wealth Creation: Successful property flipping can be a means of wealth creation and financial independence. The profits generated from flips can be reinvested in additional properties or other investment avenues. Over time, consistent and strategic property flipping can help build a substantial portfolio and generate long-term wealth.

    Active Income: Flipping gives you a hands-on approach in your investments rather than passive income streams like rental properties. An d the best part is, you can combine both when you flip to rent. Flipping gives you a sense of control and the opportunity to apply your skills and your creativity.

    Rapid Capital Growth: Compared to long-term real estate investments like rental properties, property flipping offers a relatively shorter investment timeline. This shorter turnaround time allows you to quickly reinvest your profits into new projects and grow your capital fast.

  • Financial Uncertainty: Property flipping involves significant upfront costs for purchasing properties, doing renovations, holding the property and selling it. You need to have sufficient financial resources or access to fast, reliable funding to cover these expenses.

    Renovation Uncertainty: Additionally, unexpected expenses during the renovation process can strain budgets and reduce profitability.

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Getting Pre Approved

  • The biggest benefit of getting pre-approved is receiving proof of funds letters from us and attaching them to your offers. In addition, when you get a suitable property under contract, our underwriting and approval will be a lot faster. Finally, you will have a loan officer guiding you and answering lending-related questions.

  • Apply Online on this website. Our interview-style application makes it easy for new or existing clients with or without a property to apply.

  • Everything will be in your secure portal. In most cases we require the following documents:

    If you’re looking for properties and need pre-approval:

    • Copy of Driver's License.

    • Company documents, if you’re using a company.

    • Bank account statements.

    • Tax Returns.

    If you have been pre-approved and found a property:

    • Pictures of the property.

    • MLS number, if the property is in HAR.com.

    • One to Four Family Residential Contract (Resale).

    • Write Title Company Contact Information.

    • Property Tax Statement.

    • Renovation Budget.

    If you are applying from scratch with a property:

    • Copy of Driver's License.

    • Company documents, if you’re using a company.

    • Bank account statements.

    • Tax Return.

    • Pictures of the property.

    • MLS number, if the property is in HAR.com.

    • One to Four Family Residential Contract (Resale).

    • Write Title Company Contact Information.

    • Property Tax Statement.

    • Renovation Budget.

  • A loan officer will call you within 24 hours. You will receive a link to a secure portal where you will upload documents. The process is easy and fast.

  • No. We check credit scores during the underwriting process and we oftentimes waive this requirement for returning clients.

  • Credit is not an issue, but having a plan on how you will repay the loan is required, and it should make sense. Our funding criteria is based on equity in the property, not credit.

  • Yes. Citizenship is not an issue, we look at the feasibility of your project and your ability to repay the loan.

  • Yes. Almost all our loans are made to companies, particularly limited liability companies (LLCs).

  • Yes. We lend to new and old LLCs.

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Finding Properties

  • Here are the top 25 property finding strategies, grouped by category:

    Networking

    • Wholesalers

    • Real estate groups

    • Real estate socials

    • Investment summits

    • Real estate agents

    • Driving for dollars

    Discovery

    • Door knocking

    • MLS listings

    • Non-MLS listings

    • Hiring scouts

    Distressed Situations

    • Short sales

    • Foreclosures

    • County auctions

    • Online auctions

    • REOs

    • Estate sales

    Cold Calling

    • FSBOs

    • Expired listings

    • Absentee owners

    • Absentee landlords

    Marketing

    • “We buy houses” website

    • Mailouts

    • Email Marketing

    • Paid Google Ads

  • When buying a property in Houston, it's crucial to consider regulations such as:

    • Zoning laws: Understand the zoning regulations for the area you're interested in to ensure the property meets your intended use.

    • Flood zones: Houston is prone to flooding, so it's important to evaluate a property's flood zone status and consider flood insurance. Not every lender lends on flood zones. We do not lend on flood zones.

    • Homeowner associations (HOAs): Some neighborhoods may have HOAs with specific rules and fees that buyers need to be aware of.

  • Several neighborhoods in Houston have shown potential for property flipping. Areas such as the Heights, Montrose, East Downtown (EaDo), and Spring Branch have seen increased buyer demand and rising property values. It's important to research local market trends and target areas with growth potential.

  • Networking with real estate agents, wholesalers, and other investors can provide leads on off-market properties. Utilize online platforms like MLS listings, auction websites, and real estate investment platforms. Direct mail campaigns, driving for dollars, and attending local real estate networking events can also be effective strategies.

  • Property wholesalers are individuals or companies that specialize in finding distressed or undervalued properties and then selling them to real estate investors for a profit. Here's what property wholesalers typically do:

    • Identify distressed and off-market properties.

    • Negotiate aggressively and put the property under contract.

    • Market the contract among investors, such as yourself.

    • Assign the contract to the investor who wants the property for a fee.

    • Facilitate the closing if needed.

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Estimating Repairs

    1. The lump sum method.

    2. The price per square footage method.

    3. The scope of work method.

  • The lump sum method is a straightforward approach to estimating property repairs. Instead of breaking down costs into individual components, such as materials and labor, the lump sum method provides an overall cost estimate for the entire renovation project.

    Example: Joe walks into a 1,500 sq. ft. property and says “This is a lipstick flip and based on my experience I’d say it will cost me around $20 per square foot, so the repair estimate is $30,000”.

    The lump sum method provides a convenient and simplified estimate, but it is not as precise. However, it can be useful for quickly assessing repairs and making offers. Remember, it's always advisable to consult with experienced contractors, professionals, and local market experts to validate your estimates and ensure their accuracy.

  • The cost per square footage method is a commonly used approach when estimating property repairs. It involves knowing or figuring our the cost per square footage of repairs, measuring the property and the areas to be renovated, and multiplying and adding everything. The result is a rough estimate.

    For example:

    1. Minor patch and paint and new flooring: Multiply square footage times $8.00 -$10.00 / sq. ft.

    2. Above item + exterior paint and siding repairs: Multiply square footage times $10.00 -$ 15.00 / sq. ft.

    3. Above Item + replacement of plumbing, electrical, kitchen, bathrooms: Multiply square footage times $15.00 -$20.00 / sq. ft.

    4. Above Item + roof replacement and extensive exterior repairs: Multiply square footage times $20.00 to $25.00 / sq. ft.

    5. Any foundation repairs must be bid and added to the budget. Don’t guess it!

    6. All above items + 15% for general contractor, if you’re using one.

    7. All above items plus 10% cushion (also known as “cost overrun”.)

    8. Add everything and you have your repair estimate.

  • The scope of work method is an approach used when estimating property repairs that involves creating a detailed list of all the tasks, labor and materials required for the project. The end result will be significantly close, if not essentially your renovation budget. It focuses on breaking down the repairs into specific components to provide a comprehensive estimate.

    Example: Joe used other quick methods to estimate repairs and make offers, and he finally got a property under contract. He uses the option period to go back to the property to do an entire scope of work with all bells and whistles and pricing to get a more accurate picture of how much money he will spend on renovations.

    Here's how the scope of work method works:

    1. Inspect the Property: Thoroughly inspect the property and identify all the repairs and renovations needed. Take note of each area and component that requires attention, such as electrical, plumbing, flooring, painting, roofing, etc.

    2. Create a Task List: Create a detailed list of all the tasks that need to be completed for each area or component identified in the inspection. Be as specific as possible, outlining the necessary materials, labor, and any additional requirements.

    3. Research Pricing: Research the pricing of materials, labor, and subcontractors for each task. This can be done by consulting suppliers, contractors, or utilizing online resources that provide cost estimates for different types of repairs.

    4. Calculate Costs: Calculate the costs for each task by multiplying the quantities of materials needed by their respective prices, and including the costs of labor and subcontractors if applicable. Consider adding a contingency amount (e.g., 10-20% of the total estimated cost) to account for unforeseen expenses.

    5. Summarize and Review: Summarize the costs for each task and review the overall estimate. Ensure it aligns with your budget and profit goals. Make adjustments if necessary by prioritizing certain repairs or seeking alternative solutions to reduce costs without compromising quality.

    The scope of work method provides a detailed breakdown of costs for each repair, allowing for a more accurate estimate. However, it requires careful assessment and research to ensure all necessary tasks are considered and adequately priced.

    Remember to consult with experienced professionals, contractors, and local market experts to validate your estimates and ensure their accuracy.

  • The scope of work is the most accurate because you are listing every renovation item and you are getting quotes, researching prices, and allocating budget amounts for each item. But it is also the most time consuming.

    The price per square footage is accurate enough and faster. In fact, successful investors use the price per square footage method to get a repair estimate figure to make offers.

    The lump sum method is the fastest but the least accurate method. If you’ve been doing flips for a while and know your costs well, go for it. If not, you’re in for a disaster.

    If you hear other investors talk about “blind estimates”, “quick estimates” or “guesstimates” that means they’re using the price per square foot method or the lump sum method.

  • If you’re flipping homes once or twice a year, we recommend updating your pricing list and use the price per square footage method.

    If you’re flipping homes more often and you have your subcontractors lined up and you know your costs well, then you can use the lump sum method.

    Only after you get a property under contract you should go back, dive in, and do the scope of work method to prepare your final renovation budget.

  • There really isn’t a practical and accurate place to find pricing without a contractor... or by comparing your costs from previous flips… However here are some sources that can provide you with an idea of how things cost:

    • Houston Home Remodeling & Renovation Pricing: This website offers a pricing guide for various home renovation projects in Houston. It provides cost ranges for small kitchen remodels, upgrades, and more. Click Here

    • 2020 Cost Guide for a Home Remodel in Houston: Sweeten provides a cost guide for home remodeling projects in Houston. It includes information on the cost per square foot for total gut renovations using affordable finishes. Click Here

    • HomeGuide: HomeGuide provides a general cost guide for house remodeling. It includes average costs for bedroom remodeling, including flooring, trim, moldings, and ceiling fans. Click Here

    • Legal Eagle Contractors: This website discusses the typical cost of kitchen remodeling in Houston and factors that influence the cost. It provides insights on how to save money during the renovation process. Click Here

    Please note that these sources provide general cost estimates, and actual renovation costs may vary depending on the specific details and scope of your project. It's always recommended to get multiple quotes from trusted contractors for an accurate budget assessment.

  • We’ve searched online forever, and the only one we found is Clearestimates.com. This is a tech company that caters to contractors, and they claim to have a nationwide cost database that can be tailored to local markets, plus a lot of features to generate scope of work documents. They advertise features that we can clearly see will help you A LOT, however we’re not sure if the actual prices in their database are accurate. It’s a paid service. Click Here

    If you test it please let us know, we would love to hear your thoughts. Email daniel@speedlending.com, thanks!

    • Underestimating Costs: If you fail to accurately itemize the repairs and put the wrong costs, you’re going to have a bunch of unexpected expenses during renovations.

    • Overlooking items: You need to “nerd out” at the time if inspection. No stone unturned. Think about structural damage, plumbing or electrical problems, or other unforeseen complications.

    • Adding over-improvement items: You need to strike a balance between what’s necessary and what maximizes the property's value. Do what the market dictates, and don’t fall in love with the asset.

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Analyzing Deals

    1. The 70% Rule.

    2. The Maximum Allowable Offer Formula.

  • The 70% rule is a guideline used by real estate investors to determine the maximum purchase price they should pay for a property when considering it for flipping. It suggests that an investor should not pay more than 70% of the after repair value (ARV) minus the estimated renovation costs.

    The formula for the 70% rule is: (ARV x 0.70) - Renovation Costs = Maximum Purchase Price.

    Example: You found a property that needs $50,000 in renovations and can sell for $250,000. The 70% rule goes like this: ($250,000 x 0.70) - $50,000 = $125,000. That’s how much you should be paying for that property for if you want to make a decent profit.

  • The Maximum Allowable Offer (MAO) formula is a detailed calculation used in property flipping to determine the highest price an investor should offer for a property. The formula takes into account the estimated after repair value (ARV), minus your closing costs, renovation costs, holding costs, selling costs and desired profit.

    The Maximum Allowable Offer Formula is: ARV minus closing costs, minus renovation costs, minus holding costs, minus selling costs, minus desired profit = Maximum Purchase Price

    Example: You find a property and the seller is asking for $160,000. You want to make at least $30,000 in profit. So you analyze the property, pull numbers, get quotes, etc. and you estimate the following:

    • ARV: $250,000

    • Buying Costs: $8,000

    • Renovation Budget: $30,000

    • Holding Costs (six months) = $8,000

    • Selling Costs = $16,000

    • Desired Profit = $30,000

    So, you do the Maximum Allowable Offer formula as follows:

    • ARV: $250,000

    • Minus Buying Costs: $8,000

    • Minus Renovation Cost: $30,000

    • Minus Holding Costs (six months) = $8,000

    • Minus Selling Costs = $16,000

    • Minus Desired Profit = $30,000

    • Equals: $158,000.

  • The Maximum Allowable Offer Formula is more accurate but it takes a long time.

    The 70% rule is quick and ensures you have a sufficient profit margin in your flip.

    Our most successful clients use the 70% Rule to make quick pricing assessments and to make offers. Then they do all the homework and determine all the costs in detail only on the properties they get under contract. They believe that trying to do the Maximum Allowable Offer formula on every single property they find is a waste of time. It’s somewhat like fishing: You start the effort until the fish takes the bait, not before.

  • Appraisal Fee: The appraisal fee can range from $450 to $600 for single family homes and $800 to $1,000 for duplexes, triplexes and quadruplexes. Keep in mind that with a private loan, the appraiser will not only calculate the “as-is” value of the property, but also the “after repairs value”, or “ARV”. This is why these appraisals are slightly higher than a consumer appraisal.

    Title Insurance: Usually around 0.5% to 1% of the purchase amount.

    Escrow Fees: Typically range from 1% to 2% of the purchase price and may vary depending on the complexity of the transaction. If the title company needs to clear a bunch of liens and covenants, then it’s going to be more.

    Home Inspection: Most investors don’t do general inspections of the properties they purchase, but you may very well need a structural mold or termite inspection because these are big items that you will need to remediate and they should be included in your renovation budget. If this is the case, you can expect to pay roughly $350 per inspection.

    Recording Fees: These fees cover the cost of recording the new deed and loan with the county. The fee typically ranges from $25 to $100.

    HOA Transfer Fees: If your property is located ion an HOA, chances are they charge a fee when you buy a property in their community. Most HOAs in Houston charge between $250 to $300.

    Attorney Fees: Usually between $500 and $1,000, depending on the complexity of the document package. Please note that these include both title related documents and private lending related documents.

    Loan Origination Fees: This fee is charged by lenders to cover the administrative costs of processing a mortgage application. Most private loans cost between 3% and 5% of the loan amount.

    Wire transfer fee: $25 to $45 depending on your bank.

    It's important to note that closing costs can vary based on your particular situation. Please get help from a real estate agent. If you’re not working with an agent, we can recommend good investment savvy agents.

  • Loan Payments: Loan payments are often the most significant holding cost for real estate investors.

    Property Taxes: Property taxes can vary widely depending on the location and assessed value of the property. You should research the property tax rates in the specific county for the property you’re considering buying. Note that property taxes is usually not something you pay for during the project, but rather the property tax will accrue and you will have to pay it when you sell the renovated property. And if your flip crosses January 31, which is the deadline where all taxpayers must pay property taxes in all counties in and around Houston, then you will have to make a payment.

    HOA Fees: Homeowner Association fees work the same way as property taxes. If your property is in an HOA, you may not have to pay the HOA fee every month, but it will accrue and you will eventually have to pay the accrued time you had the property in your possession, and that will be discounted when you sell the property. And just like property taxes, if you cross January 31, you will have to make a payment. Some HOAs have different payment dates, January 1, January 31, etc.

    Insurance Premiums: Adequate insurance coverage is essential to protect your investments, and required by your lender. And these premiums can impact holding costs. Shopping around for competitive insurance quotes from multiple providers can help lower premiums without compromising coverage.

    Ongoing Maintenance and cleaning: Ongoing maintenance and cleaning while you are doing renovations and while you are listing the property for sale is a holding cost. Think about dumpsters, landscaping, pest control, overall dusting and cleaning, etc.

    Utilities: Utility bills can add up during the holding period of a property. To minimize these costs, you should explore energy-efficient solutions such as installing programmable thermostats and LED lighting. Additionally, when the property is vacant, turning off unnecessary utilities or switching to lower-cost alternatives can help reduce expenses.

  • Buyer's Agent Commission: Usually 3% of Sales Price. Seller's generally pay the buyer's agents commissions which are typically 3% of the Sales Price. Now, if you are a real estate agent, then you could potentially earn 3% on the sales commission, however we recommend that you treat this outside the deal and not include it as part of your analysis.

    Seller's Agent Commission: Usually 3% of Sales Price: If you hire a Listing agent, you need to add the seller’s agent commission, which is usually 3% of the sales price. If you are a real estate agent, then you can choose not to include this 3%. However, we recommend that you add the 3% in your analysis so that your analysis has a true representation of the outcome.

    Listing expenses: Between $150 - $600: Even if you’re the listing ageny, you will still have certain listing expenses, such as professional photography, video, printed materials, signage, virtual staging or traditional staging.

    Seller-Paid Closing Costs: $0 to a negotiated amount: In most situations you, as the seller, will not have to pay for any of the buyer’s closing costs, however there may be situations where you may consider paying for some of the buyer’s costs in order to “move the deal”.

    Home Warranty: Between $400 and $500. Generally if you want to “sweeten” your listing, you can offer buyers to purchase a Home Warranty that covers repair or replacement of appliances, systems or components of the home for a 1-year period.

    Certificates and Warranty Transfers: Usually $350 - $400. If you’re selling, you probably never think about inspecting the property and producing a report, certification or warranty. But in some scenarios, buyers and their lenders may require proof of a termite inspection, or a flood remediation certificate, or a transferable foundation warranty. Transferring foundation warranties may cost you.

    Inspection repairs: Varies. The buyer's inspector is likely to recommend certain repairs. You have a choice of giving the buyers cash at closing, or to do the repairs before closing.

  • To apply the 70% rule, you calculate 70% of the ARV and then deduct the estimated renovation costs. The resulting amount represents the maximum purchase price that an investor should consider. If the asking price for a property exceeds this amount, it may not be a good deal according to the rule.

  • Yes, it's important to accurately estimate the ARV and renovation costs to determine the maximum purchase price. Overestimating the ARV or underestimating the renovation costs can lead to paying too much for the property.

  • Yes, the 70% rule can be adjusted depending on the local market conditions, competition, and other factors. There is no established adjustment, however the general consensus among successful and serial flippers in Houston seems to be the following:

    • If the area is experiencing 60 days on market or less, then you can adjust the 70% rule to be 80%.

    • If the area is between 60 and 90 days on market or less, then use 70%.

    • If the area is between 90 and 120 days on market, then adjust to 60%.

    • If the area is over 120 days on market, then don’t consider the property and move on to other areas.

  • Yes, the 70% rule takes into account the estimated renovation costs as part of the calculation to determine the maximum purchase price.

  • The 70% rule helps investors ensure they have a sufficient profit margin in their property flipping ventures. It helps minimize the risk of overpaying for a property and provides a guideline to evaluate potential deals quickly.

  • While the 70% rule is a useful guideline, it's important to consider factors like location, market conditions, property type, and potential profit margins. In some cases, an investor might decide to deviate from the rule based on their experience and judgment.

  • The formula doesn’t give you an ARV. Playing the formula by entering an offer price and renovations will NOT give you an accurate ARV. You need to estimate the ARV outside of the formula. ARV estimates can vary depending on various factors such as comparable sales, market trends, and property conditions. It's crucial to conduct thorough market research and consult with real estate professionals to ensure accurate ARV estimates.

  • The 70% rule is commonly used for residential property flipping but may not be as applicable for commercial or multi-unit properties. Investors working with different property types should consider alternative formulas and strategies specific to those property types.

  • We have analyzed hundreds of flips and we can say with great confidence that the more expensive the flip, the less accurate the 70% rule becomes. if your intention is to fix and flip luxury properties over $1,000,000, then you should consider alternative formulas and strategies. The most common is the Maximum Allowable Property Formula.

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Making Offers

  • We recommend talking to a real estate agent about this. In our view, a good offer would be all cash with strong escrow and option amounts, and include proof of funds.

  • A proof of funds (POF) letter is a document that you need to attach to every offer you make to provide evidence of your (or your entity’s) financial capacity. When you have been approved by SpeedLending, we will provide proof of funds letters that you can attach to your offers.

  • Call or text your loan officer, and you will receive the letter in PDF format by email or text. We use powerful tech on our end without forms, procedures or drama on your end.

  • Usually about 10-20 minutes during business hours… If you need a proof of funds letter after hours, or weekends or holidays, just make sure you find your loan manager - they have a life, too.

  • Yes. We can send the proof of funds letter to you and your agent. Just let us know.

  • Yes. Our brokerage affiliate has licensed real estate agents who understand the aggressive nature of flips and who can help you negotiate and handle the paperwork.

  • There are two ways to determine a good offer price:

    1. The “Maximum Offer Formula”: You take the after repairs value (ARV) of the property and subtract your estimated purchase costs, renovation costs, holding costs for what you think your flip will last, sales costs, and whatever profit you reasonably expect to make.

    2. The “70% Rule”: You take the after repairs value (ARV) of the property, multiply it by 70%, and subtract your renovation costs. That gives you a good guideline.

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Closing & Funding

  • We fund in as little as 7 days. Most our loans close between 7 and 14 days.

  • No. We fund a portion fo your loan at closing and we fund the rest in subsequent draws as you complete renovations. Talk to your loan officer about the amounts we will bring at closing.

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Managing Renovations

  • When it comes to funds needed for renovations, we do not advance the funds for you. Instead, you must first complete renovation milestones, and then request draws to get reimbursed. This is true for almost 100% of all Hard Money loans, construction loans and delayed draw loans.

  • Call or text your loan officer the amount. We will dispatch the inspector and handle the paperwork. All you need to do is sign a draw affidavit from your phone. No red tape here.

  • About 3-4 days. It takes an inspector one day to schedule and inspect, another day to give us the inspection report, and another day for us to send the funds to you. Ant then you may have your bank taking one extra day to post the money into your account.

  • Between $150 and $175 per draw inspection.

  • We send you an electronic invoice with a click and pay button.

  • Yes. We may be able to save you money by doing the inspection ourselves instead of dispatching an inspector. We do this with recurring clients on a project-by-project basis.

  • We send you an electronic invoice with a click and pay button at the end of every month.

  • No. Interest is based on the funded amount of the loan. For example, say we close a loan for $200,000 and we fund $150,000 at closing. Interest will be based on $150,000, not $200,000. Now, let's assume you draw $10,000. On that day, your interest will no longer be based on $150,000, but on the new funded amount of $160,000. As you draw more, your interest will be based on new funded amounts until it reaches your loan amount.

  • No. Rolled-up interest, also known as capitalized interest, is when instead of paying interest, you add it to the outstanding principal amount of the loan. We do not allow rolled-up interest.

  • When a borrower defaults on a hard money loan they are in danger of being foreclosed upon and losing the property they used as collateral to secure the loan. If you miss a payment, we will attempt to follow up once or twice before sending a notice of default and possibly recording and proceeding with the foreclosure process to recover the funds. With that said, foreclosure is not the desired course of action for any lender, so if you are going to miss a payment, we encourage you to talk to us. We would much rather assess the situation and see if a foreclosure can be avoided.

  • The better your scope, the better the quote. Be as specific as possible. Otherwise subcontractors may quote somehting else.

    • Bad example: “Replace all electrical switches and plates.”

    • Good example: “Replace all switches with 15 Amp Decora AC Quiet Switch and Leviton screwless wall plates, all white.”

    • Why? You may get cheaper quotes BUT the subcontractor is thinking about cheaper toggle switches and plates with screws.

  • There really isn’t a magical place to find pricing. However here are some sources that can provide you with cost estimates:

    • Houston Home Remodeling & Renovation Pricing: This website offers a pricing guide for various home renovation projects in Houston. It provides cost ranges for small kitchen remodels, upgrades, and more. Click Here

    • 2020 Cost Guide for a Home Remodel in Houston: Sweeten provides a cost guide for home remodeling projects in Houston. It includes information on the cost per square foot for total gut renovations using affordable finishes. Click Here

    • HomeGuide: HomeGuide provides a general cost guide for house remodeling. It includes average costs for bedroom remodeling, including flooring, trim, moldings, and ceiling fans. Click Here

    • Legal Eagle Contractors: This website discusses the typical cost of kitchen remodeling in Houston and factors that influence the cost. It provides insights on how to save money during the renovation process. Click Here

    • Clearestimates.com: This is a tech company that caters to contractors, so naturally it has both a national cost database and a lot of features to generate scope of work documents. They advertise features that we can clearly see will help you A LOT, however we’re not sure if the actual prices in their database are accurate. Click Here

    Please note that these sources provide general cost estimates, and actual renovation costs may vary depending on the specific details and scope of your project. It's always recommended to get multiple quotes from trusted contractors for an accurate budget assessment.

  • To pull permits in Houston for a house flip, you will need to follow the process outlined by the Houston Permitting Center. Here are the general steps involved:

    • Contact the Houston Permitting Center at (832) 394-9000 or head over to 1002 Washington Avenue. Houston, TX 77002. Get directions

    • Alternatively, visit the Houston Permitting Center's website at houstonpermittingcenter.org to access the necessary resources and information. If you are unsure as to what permits you will need, there is a main navigation menu item called “Project Planner”. Click on that. It’s an interview-style process that takes about 10 minutes.

    • Submit an application: Prepare and submit an application for the required permits. The application may differ depending on the scope of your project, such as structural changes, electrical work, or plumbing alterations.

    • Pay fees: Once you have submitted your application, you will need to pay the applicable fees. These fees may vary depending on the type and size of the project.

    • Submit plans: Provide detailed plans and documentation of the proposed renovations or improvements. This may include architectural drawings, floor plans, engineering reports, or other relevant documents.

    • Track application: Utilize the Houston Permitting Center's eServices to track the progress of your permit application. This will help you stay updated on any reviews or comments from the building department.

    • Schedule inspections: Once your permit is approved, you will need to schedule inspections at various stages of the project. This ensures that the work complies with building codes and regulations.

    • Comply with codes and requirements: Ensure that all work done during the house flip project adheres to the building codes, ordinances, and regulations set forth by the local municipality. Failure to comply may result in penalties or complications during the selling process.

    It's important to note that specific requirements and processes may vary based on the nature of your project and the location within Houston. It is recommended to consult with the Houston Permitting Center or engage the services of a professional contractor who is familiar with the local regulations.

  • Each project is different, but in most cases, it could be something like this:

    • Lipstick flips: You don’t have to get a remodeling permit but your trades (plumbers, electricians, roofers, foundation repair companies, etc.) will need to get a permit themselves.

    • Moderate flips: Think about it this way: The moment you demolish or add a wall (or both) the best thing to do is to get a remodeling permit for yourself, and each of your trades will need to get one on their own.

    • Total Guts: Definitively get a renovation permit and, if you’re making additions, you may need an extra set of permits depending on what you’re going to do.

  • Exterior:

    • Roof Replacement (1 to 3 days)

    • Siding Replacement (5 to 10 days)

    • Window Replacement (2 to 5 days)

    • Minor Foundation Repairs (2 to 3 days)

    • Major Foundation Repairs (1 to 2 weeks)

    • Paint the Exterior (2 to 4 days)

    • Install New Shutters (4 to 8 hours)

    • Install New Landscaping (4 to 8 hours)

    • Install new Mailbox (2 to 4 hours)

    Interior Rough Ins:

    • Rough Framing (1 to 5 days)

    • Rough Plumbing (1 to 5 days)

    • Rough Electrical (1 to 5 days)

    • Rough HVAC (1 to 5 days)

    Interior Finishes:

    • Drywall (1 to 10 days)

    • Doors & Trim (2 to 5 days)

    • Interior Painting (2 to 5 days)

    • Kitchen Cabinetry (2 to 3 days)

    • Bathroom Remodel (3 to 10 days)

    • Countertops (1 day)

    • Flooring (2 to 5 days)

    • Light Fixtures (1 to 2 days)

    • Plumbing Fixtures (1 to 2 days)

    • Appliances (4 hours)

    Punchlist:

    • Punchlist plus punchlist repairs: (1 day to 1 week)

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Exits & Payoff

    1. Sell it to end users at market value.

    2. Sell it to an investor as a tenant-ready home.

    3. Sell it to an investor as a tenant-occupied home.

    4. Refinance into a conventional loan and keep it as a traditional rental, corporate housing or AirBnB.

    5. Refinance with a conventional loan as part of a BRRR strategy to build a rental portfolio.

    6. Pay the loan off and keep it for yourself.

  • Almost all our clients sell the renovated property and pay back the loan using the proceeds from the sale. Alternatively, you can obtain a conventional loan and the new lender will pay off our loan, or you can pay the loan with your own money.

  • In almost every scenario, the sale of your renovated property will happen at a title company. They will receive money from the buyers (or the buyer's lender), liquidate our loan, and give you your profit.

  • Whether or not Airbnb is a good idea depends on various factors and individual circumstances. Here are some points to consider:

    Benefits of Airbnb:

    • Potential for Higher Profits: Renting out a property on Airbnb can be lucrative, especially in high-demand areas. The nightly rates charged on Airbnb can sometimes lead to greater profits compared to traditional long-term rentals.

    • Flexibility and Control: As an Airbnb host, you have more control over your property and the ability to set your own rules and guidelines. You can also adjust pricing and availability according to your needs and preferences.

    • Additional Income Stream: Renting out a spare room or a property on Airbnb can provide an additional source of income, which can be especially beneficial for homeowners looking to offset mortgage payments or generate extra cash flow.

    • Increased Market Reach: Airbnb has a large and diverse user base, providing hosts with access to a wide range of potential guests from around the world. This allows hosts to tap into a global market and attract travelers who prefer the experience of staying in a homelike environment.

    Considerations and Risks:

    • Regulatory Challenges: Depending on your location, there may be local laws and regulations regarding short-term rentals. It's important to familiarize yourself with these rules and ensure compliance to avoid legal issues.

    • Operational Responsibilities: Hosting on Airbnb requires effort and time commitment. From managing bookings and guest inquiries to ensuring the property is clean and well-maintained, hosting on Airbnb can be demanding.

    • Potential Vacancy and Seasonal Fluctuations: The demand for short-term rentals can vary based on factors such as location, seasonality, and local events. There may be periods of low occupancy or seasonal fluctuations that impact the profitability of Airbnb investments.

    • Competition and Pricing: With the increasing popularity of Airbnb, competition among hosts has also grown. It is important to assess the local market and adjust pricing and amenities to remain competitive and attract guests.

    • Property Damage and Liability: While Airbnb provides host protection and insurance coverage, there is still a risk of property damage or liability issues. It is advisable to have appropriate insurance coverage and take necessary precautions to protect your property.

    Tip: Ultimately, the decision to turn your flip into an Airbnb depends on your financial goals, willingness to manage the property, local regulations, and market conditions. It is advisable to thoroughly research and analyze the potential risks and rewards before making an investment decision.

    • Make sure AirBnBs are allowed in the area where the property is located. Many HOAs don’t allow AirBnBs… and it gets tricky because if you ask, and they don’t know, they may say “no “ and now you’re in their radar.

    • Ask yourself: Am I willing to put an AirBnB is a highly rotational area? You see, we have had clients with AirBnBs in areas such as Midtown Houston, and they experienced a significant amount of rotation, one or two days at a time, and mostly on weekends. It was a lot of work and not enough revenue to surpass what a traditional rental would yield.

    • Choose a location where you could entertain both AirBnB and corporate housing. Remember our clients in Midtown? They tried near medical centers and energy company hubs in the suburbs and they discovered that their houses were rented for weeks at a time. That’s a far more profitable endeavor. Plus the banks may don’t care about your intended extra income. In fact, you ay even scare them.

    • Pick properties where a traditional rent makes sense. That’s because if AirBnB doesn’t work out for any reason, you can switch to a traditional rental that makes money.

    • Be careful what you say to conventional lenders. Most of them want to see a steady flow of income that pays the loan. The safest bet is to treat everything as a traditional rental. Once you close on the loan, you do AirBnB, corporate housing.

    • Crunch the numbers well. You still have all the purchase costs, renovation costs, mortgage payments, property taxes and insurance. But now you need to add furniture purchases, utilities, Internet, maintenance, furniture repairs, and AirBnB transaction fees. And your income may be higher per stay, but you will also have idle days throughout the month.

    • Set realistic profitability expectations. The consensus seems to be this: If you’re not making an easy $500 extra when compared to a traditional rental, it may not be worth it.

    Remember, purchasing an Airbnb rental property is an investment that comes with ongoing management. Ask yourself: Are you investing or are you buying yourself a job?

  • The BRRRR strategy involves buying an undervalued property, rehabilitating it, renting it out, refinancing to recover capital, and repeating the process. This strategy allows you to build a real estate portfolio without using all your own funds, potentially generating significant cash flow and long-term appreciation.

  • Hard money loans are short-term, asset-based loans secured by real estate.

    They are ideal for house flippers pursuing the BRRRR strategy due to their quick approval process, flexible lending criteria, and ability to finance both acquisition and renovation costs.

    • Quick access to funds: Hard money loans can provide the necessary capital within a short timeframe, allowing investors to seize profitable opportunities.

    • Flexibility in lending criteria: Hard money lenders focus more on the property's value rather than the borrower's creditworthiness, making it easier for investors to qualify.

    • Ability to leverage funds: Hard money loans allow investors to use less of their own money and potentially acquire multiple properties simultaneously.

    • Higher interest rates: Hard money loans typically have higher interest rates compared to traditional mortgages, increasing the overall cost of borrowing.

    • Shorter loan terms: Hard money loans often have terms ranging from 6 months to 12 months, requiring investors to quickly complete renovations and secure long-term financing.

    • Increased risk: If the project experiences delays, unexpected costs, or difficulty in finding tenants, investors may face financial challenges.

    • Market fluctuations: Real estate markets can be unpredictable, and changes in property values can impact the profitability of the BRRRR strategy.

    • Overestimating ARV: A miscalculation of the property's ARV can result in difficulties refinancing or recouping invested capital.

    • Inability to find tenants: Failure to attract suitable tenants can lead to extended vacancies and increased holding costs.

    • Thorough due diligence: Conduct extensive market research and property analysis to ensure you're investing in a profitable opportunity.

    • Accurate budgeting: Create a detailed renovation budget, including contingency funds to account for unexpected expenses.

    • Build a reliable team: Work with experienced contractors, property managers, and real estate professionals who can guide you through the process.

    • Talk to us! We can analyze your BRRRR deal and give you a comprehensive report and provide some insights, so you can make an informed decision.

    • Evaluate your financial goals, risk tolerance, and available resources.

    • Consider consulting with a financial advisor or real estate mentor who has experience with the BRRRR strategy and hard money loans.

    • Talk to us. We can walk you through a hypothetical analysis, so you can make informed decisions. We would show you the amounts you need to invest, the amount of money you get when you refinance, the cash flow and the capital gains over time.

  • Corporate housing is like AirBnB, but you’re renting to a company that uses the house to temporarily host overseas employees or give accommodations to certain experts on temporary assignments. Think about the house being located close to Exxon Campus, or a Methodist suburban campus. Here are some points to consider:

    Benefits of Corporate Housing Rentals:

    • Higher Rental Income: Corporate housing rentals often command higher rental rates compared to traditional residential rentals. This is because they cater to business travelers who are willing to pay a premium for the convenience, amenities, and flexibility that corporate housing provides.

    • Stable Demand: Corporate housing rentals tend to have a more stable and consistent demand compared to traditional residential rentals. This is because they cater to professionals on short-term assignments, relocating employees, or individuals in need of temporary housing due to personal circumstances.

    • Furnished and Equipped: Corporate housing rentals are typically fully furnished and equipped with essential amenities, making them attractive to tenants who prefer a hassle-free living experience without the need to purchase furniture or set up utilities.

    • Professional Networking Opportunities: Hosting corporate tenants can provide opportunities for networking and building relationships with professionals from various industries. This can be beneficial for hosts looking to expand their professional network or explore potential business opportunities.

    Considerations and Risks:

    • Higher Operational Responsibilities: Managing corporate housing rentals requires attention to detail and responsiveness to tenant needs. This includes coordinating check-ins and check-outs, handling maintenance issues promptly, and ensuring the property remains in top condition.

    • Fluctuating Demand: The demand for corporate housing rentals can be subject to market fluctuations and economic conditions. Depending on the location and industry trends, there may be periods of high demand and low demand, which can impact occupancy rates and rental income.

    • Market Saturation: In popular business destinations, there may be significant competition among corporate housing providers. It is important to assess the local market and differentiate your property and services to attract potential tenants.

    • Shorter Lease Terms: Corporate housing rentals typically involve shorter lease terms compared to traditional residential rentals. While this can provide flexibility for hosts, it also means that there may be more frequent turnover and a need to continuously find new tenants.

    • Understanding Corporate Policies: It is important to familiarize yourself with the corporate policies of potential tenants or corporate housing booking platforms. This includes understanding payment processes, insurance requirements, and adherence to any specific guidelines or standards.

    Ultimately, the decision to invest in corporate housing rentals depends on factors such as location, market demand, property availability, and your ability to meet the unique needs of business travelers and corporate tenants. It is advisable to conduct thorough research, understand local regulations, and assess the potential risks and rewards before making an investment decision.

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