The Dirty Truth about Gap Funding!


What is Gap Funding?

It’s a term that’s used very loosely.

To some, it may mean that they are looking for additional capital to “gap” a loan. However because this is such a rare occasion, most have no idea what this means.

First of all, when people seek gap funding, they don’t realize that they are alerting the lending community that they are not liquid enough to do their deal. This is already a red-flag!

Who gets Gap funding?

Gap funding, when used in the sense that I referenced above is reserved for operators and investors with prior experience flipping properties. This means that lenders want to see that you were on the HUD or Settlement statement, not just participated on the deal.. this means you have to prove your exits.

Also this experience has to have taken place within the past 1-3 years. They want you to have current knowledge of the challenges of fix and flipping before they trust you with a no-money-down transaction.

They also want to see that you have “reserves”.

This means that once they make the 100% loan to you, which includes their expensive gap capital contribution, they want to see you how you will make those payments!

If you expect them to cover all of the rehab, construction, holding costs and selling costs, the deal has to have lots of REAL potential after remodel value, prove this by having supporting comparables.

The subject will have to be in the best areas, and you need to know your rehab budget, and get it confirmed by a contractor and his proposed team. Get each trade’s bid verified if you must. This will allow you to prove the feasibility of the project. The lenders actually want to know what materials, how much labor, hours needed to complete the deal, etc.,

Gap Funding behind another Lender?

This is the usual request, a prospective client goes and gets a 1st loan quote with a “gap” that they need to find somewhere.. anywhere ! Many times the down payment is not sourced and doesn’t need to be seasoned.

The general answer is NO.

  • No because the lenders don’t know each other.
  • No because the lenders don’t know you.
  • No because I don’t know you.

Real estate is a relationship business, and a joint venture (which is what you’re proposing) is akin to a marriage, and it takes a bit of dating, and lots of trust to create that environment.

In a short answer, forget about it.

Do you have recent experience? And you need gap funding? Why?

Lenders wonder if you have a problem managing money, managing your team, managing the rehab process, or who knows right?

They ask themselves if you have recent experience why would you need gap funding.

You should be prepared with answer and Letter of Explanation to calm these concerns.

A.R.V Lending

ARV = After Repaired Value

In cases when you find an awesome opportunity, some lenders will use a formula – they add acquisition cost, plus the rehab cost, plus the closing costs, and then divide that number by the expected retail price, it gives a number, that percentage is your % of ARV, generally they max this out t 75%.

Example = $650,000 purchase price + $100,000 rehab, 8-9% closing costs = $117,000 = $867,000. Divide that by the expected retail price of $1,300,000 = 66% of ARV.

If you landed that deal above, an ARV, asset-based lender may be interested in working with you, provided you have experience with this level of flip.

That brings me to another point. If you have history of flipping $100,000 homes, but suddenly want to flip a $1,000,000 home, you may meet some resistance. Not only does the expectations grow larger, but the LTV’s get smaller, which means that down payments go up, you may then have to bring in 10%.

Alternative Funding to Gap your deals

My advice is that you consider the following alternative funding methods we’ve used to help investors get deals done.

In order to get funding, you have to be coming from a position of strength. This means you should have good credit, in this case I mean 700 fico scores. If you have a business with revenue even better, having assets that can be leveraged and possibly earning income sweetens the deal!

Unsecured Personal Funding

This can come in the form of credit cards, credit lines, from a variety of sources. These have different terms including 0% interest for an intro rate to induce you to use the credit, or 8,10, or 18%+ right off the bat. You can stack this funding up and settle around $250k, which is probably 6-7 different tradelines, with major banks like B of A, Chase, PNC, Barclays, Navy Fed, Penn Fed, Discover, PayPal, and many others. Of course, every tradeline will suffer you an inquiry, of course, this fall off or can be removed for a fee.

Business Term Loans

The business term loans are also for 700+ fico scores across the board, you will need to claim $50,000 in personal taxes, if you qualify – the rates are around 6%-9% depending on your credit profile. The term is 5-7 years. We can raise up to $500,000.

Cross Collateralization

If you have existing assets in your portfolio, these can be residential or commercial, they should have some equity, perfect if they are long-term holds. You can add extra leverage to your purchase by allowing the lender to place a lien on additional assets. This compels the lender to move forward with the loan because you’ve reduced the risk and shown good faith.

Revenue Loans

If you have a business and you earn income, you may be able to leverage that and get a lump sum that you can use for gap funding your deal.

Friends, Family and OPM

This is the hardest source of capital to get, but it would likely be a better choice than shopping for a 2nd lien, often they won’t require so much paperwork, and probably won’t require a 50/50 split, saving you a bunch on the back-end.

Creative Financing

Today we need to be fully educated and aware of the many alternative funding options available, or know someone that is!

Sometimes funding a 1st or 50th transaction requires someone with the resources and experience with structuring multiple funding rounds to achieve a goal.

I will be ready to hold your hand to get you through your first flip or purchase of a rental property, or refinancing of a portfolio or project that is about to balloon, or you just want to explore new terms, it’s no risk! I never charge consultation fees to quickly go over a loan scenario or help a borrower through the process.

If you have an interest in real estate investing, flipping, or in the market for a loan, please contact me.

Wholesaling and Flipping

Many people start off wholesaling properties – this is another term that is often used freely and could mean many things, but for this article, I’m referring to finding sellers and properties listed with agents and matching them with your investor and buyer lists to earn marketing fees for facilitating the transaction.

Investors AKA check-writers need “boots on the ground” in order to drive leads for analysis. This builds their funnel, you keep a flow of target properties coming their way, they’ll reward you with fees of $1000-$10,000+ depending on the deal and the principals.

Using my old-school approach and combining this with technology and tools, you’ll learn to structure deals from on-the-job training, but I’ll be here to answer your questions and hold your hand.

Private Lending Consultant Flight School

I offer mentoring – in these formats: Live, and on your schedule, we’ll have phone calls and Zoom screen-shares, you’ll get lots of resources including documents, templates, marketing and full instructions. Tactics that work in today’s market! You can get more info here.

Private Lending Success Video Course

I’ve Pre-recorded 6 modules that will teach you the basics and tricks I use in private lending, perfect for real estate agents, loan officers, real estate wholesalers, even those looking for another source of income. This course is short – 4.5hrs, and will teach you how to use a mobile phone to launch an extremely effective and powerful marketing campaign.

Download Private Lending Success Ebook FREE for a limited time!

Visit this link and confirm your email and receive the PDF

You can register for free on my pre-launched site Lender Tribune

Or if you want to pay a few dollars, go over to Udemy and sign up there.

greg@fixandflippers.com

323-632-3279

Los Angeles Investment Opportunities


Two R2 Projects! Build New Duplexes!
Both in the 90061 Zip Code!

1229 E. 109th Place Los Angeles, CA 90061


R2 Zoning
Existing SFR is a 2/1 756 SF
Lot size 5325 SF
Will be delivered vacant!
Price $418,000 – Buyer to take over or buy out the existing solar lease (buy-out it $18,000)- EMD $10,000
Closing February 21

437 W. 111th Place Los Angeles, CA 90061

  • R2 Zoning
  • Existing SFR is a 2/1 876 SF
  • Lot size 7003 SF VACANT!
  • Price $425,000

EMD $10,000

Closing February 10
Both of these properties are in nice neighborhoods of South-Central Los Angeles. Perfect to build new duplexes, add ADU’s, or expand the current SFR’s.

Contact me for showing or make an offer.

Greg@FixandFlippers.com

323-632-3279

Tips for Buying an Accessible Home


Your home is a space where you can escape the hustle and bustle of the world and enjoy some peace. When you’re shopping for real estate, you want to find a property that suits your personal style and needs. This is especially true if you are living with a disability. Individuals with disabilities tend to have lower-incomes, making the hunt for affordable yet accessible housing more challenging. However, with some advanced planning, time, and effort, you will find your dream home. Let the below steps guide you through the process.

Determine your budget and financing needs in advance

If you currently own a house that you are planning to sell, get an idea of how much of a profit you will make using a real estate valuation tool like Zillow. Look at properties similar to yours in terms of design and square footage in your area to get an estimate of how much your place might sell for. The money you make can go towards your down payment on your new place—ideally, about 20% of the total sale price. 

When investing in an accessible home, there may also be financing options available. For example, the U.S. Government’s Federal Housing Authority offers mortgage loans based on income received from Social Security Disability Insurance and Supplemental Security Income. You just have to prove that you will continue to receive these benefits for at least three years after applying for the loan. If you are unemployed or only employed on a partial basis because of your disability, such a loan can be helpful. 

Make a list of your accessibility needs

Different individuals have different needs in terms of accessibility. For example, individuals living with cerebral palsy are advised to get a house with a single-level floor plan that eliminates the need to climb stairs. If you have vision problems and require a guide dog, getting a house with a yard where your four-legged friend can get fresh air makes sense. Other characteristics that make a house more accessible include handrails, a shower with a seat, and doorways wide enough to accommodate a wheelchair. Keep your future accessibility minds in need as well: You might not need a wheelchair now, for instance, but will you require one down the line?

Odds are you won’t find a house that meets every single criteria on your accessibility checklist. Home renovations can help fill in the gaps. Take one of the most frequently used rooms of the house, for example—the bathroom. To make it wheelchair accessible, you can have the doorways widened, add a walk-in shower, and lower the height of the sink.

Leave plenty of time for a smooth move

Once you’ve found your accessible home, start preparing to move. To minimize stress, leave plenty of time for the transition. Plan on packing up one room at a time so that your entire house isn’t turned into a whirlwind at once. Use colored post-its to specify which boxes should go into which rooms, and keep a list of how many boxes you have per room to ensure nothing gets lost. If you are going a long distance, consider a hybrid move. With this approach, you divide your move amongst three providers—local movers to unpack your house, a transport team to drive your goods, and local movers in your new location to unload the truck. This approach tends to be cheaper and can save you up to 40% on moving costs.

There’s no need for house hunting and moving to be a stressful experience. With these guidelines, you will be able to find an accessible home and enjoy a hassle-free move. Just give yourself some time and soon enough, you’ll be comfortable in your new house.

Photo Credit: Pixabay.com

Guest Blog Post By: Patrick Young

Email: patrickyoung@ableusa.info

Fully Approved Plans and Permits for Malibu Ocean View Property!


The seller obtained permits on this property from the City of Malibu which took 18 months. He also has full plans – architectural, structural and landscaping which took almost a year to complete. As you know, plans and permits are the hard part. This Malibu rehab is a perfect project for an end user or developer. Malibu is a beautiful and serene community. The property has real unobstructed ocean views and no PCH noise even though it is only a minute up from PCH.


A well-known LA architect worked on the design and remodel for it to be updated to an open floor plan and a master bedroom with a very large walk-in closet and ocean view. Once completed, as soon as you walk in the house you will be able to see the backyard and the ocean. The kitchen is adjoined to the family room, dining room and shares this beautiful view. The family room opens up to the backyard so that it embodies the true Californian lifestyle of outdoor living.

Asking $3,247,000

Bring your own builder or hire us!
Smart Home Candidate

Signature Smart Construction and Delta Construction and Design, Inc are available for full service construction management, smart home consultation, automation advice. CLSB #782999

These are some of the more well known upgrades we offer.

email me greg@fixandflippers.com

Don’t care for this project?

That’s fine! I’ve identified a lot of projects like this that are RTI (ready to issue) bring the budget, I’ll bring the crew!

Text me 323-632-3279

Newly Remodeled Smart Home in Westwood Just Listed.


Check out this hot property near Brentwood that Signature Smart Construction was blessed to work on, and collaborate with Project Buddy Pro: a local fund control and on-demand construction management company that has a Professional program that I use to source quality contractors for jobs.

Signature Smart Construction is a Malibu, California based company specializing in Luxury Smart Home Consulting, Additions, Automation, and New Builds. They are a Los Angeles division of Delta Construction and Design, Inc based in San Diego, California. CLSB #782999

This property is listed by my brother Chris Nelson from Californian Estates.

Californian Estates is a full service real estate company specializing in Luxury Estate sales is based in West Hollywood California.

Property Address: 375 Dalkeith Ave, Westwood, CA 90049

3900 SF, 8436 SF lot, Traditional Style, 4 Good size Bedrooms, 4 bathrooms,

Private Showings Only $2,950,000

Amazing location close to Wilshire Corridor, Brentwood and Bel Air. PRICED TO SELL!! This amazing property in the prestigious Westwood neighborhood, near Brentwood, Bel-Air and Beverly Hills. Recently remodeled SMART-HOME is over 3900 sq. ft. and sophisticated living, offering 4 bedrooms, 4 bathrooms. New kitchen with center island, dining room opening out to a deck overlooking the rear yard.

Property Features: 2 Large mature fruiting avocado trees. Motion sensors throughout, commercial grade hot water heater capable of heating a 8000 SF home, triple-pane windows in the back and double pane windows in the front buffers the freeway noise in the backyard.

The ceilings have all been raised up. The attic space has 14″ ceilings! You could build out an office space, gym or rec room.

The home was plumbed and set up to support a 12ftx15 ft wine cellar.

Kitchen has 36,000 BTU Restaurant Oven.

The master has a deep closet area designed to build out a dressing room area.

Alexa

Alexa has been installed to support the Ring camera monitoring the home and Samsung Smart Fridge, dishwasher, garage door opener and interior lights.

Hardwood floors and high ceilings. Living room with fireplace. The backyard includes an entertaining area and children play area. Two car garage with a built-in electric plug for our electric vehicle. Waterfall and landscaping included. This property is well under the current comparable in the area.

Seller is a general contractor and has installed brand new beams throughout. The property has been remodeled from top to bottom adding 2000 SF.

Contact my brother direct for a private showing.

Chris Nelson

Sales and Acquisitions

C – 407-421-1072

chris@californianestates.com

BRE: 02103225

Want to Build 4 homes or 8 apartment units in Central Los Angeles?


Zoned R3 near Korea town, and the Miracle Mile area.

A similar project 2 doors down, the developer is building 4 single-family homes.

There is an existing home there – 3/3 with 2816 SF. the lot is 6632 SF.

The comparable property is 421 S Wilton, that purchase price was $1.45M back in April 2016.

The purchase price is $1.490m

Proforma: Potential to earn $6M from retail sales of 4 single-family homes.

Cost to build estimate: $2.5M

Access is by appt. only.

Contact me for address

Downsizing Advice All Seniors Need to Hear


Photo By: Unsplash

Downsizing is becoming common among seniors, and for good reason. For one, it could be the difference between a lower mortgage payment (or none at all), freeing up income for leisure and expenses. It also means a much smaller house to keep up, which improves both safety and accessibility. If you’ve been toying with the idea of downsizing, the following are some pieces of advice you should take to heart.

Is It Time to Downsize?

There’s not a definitive answer to this question because there are several scenarios in which it makes sense to downsize. You could have a home with many rooms going unused or one that isn’t conducive to aging in place, or you may have unmanageable monthly expenses and difficulty keeping up with cleaning and maintenance.

How to Begin the Downsizing Process

You’re downsizing your home, but you’ll also need to downsize everything in it to fit comfortably in your new home. Where do you begin? Well, before you start, there are some smaller details you should handle first before you tackle the downsizing process. Take photos of your home to keep as mementos, sort through/purge paperwork, and label photographs. Decide what you’d like to gift to family and friends, as it isn’t feasible or fair to pay for storage for items they aren’t yet ready to accept.

Once you’ve done this work, you can get started downsizing by first taking inventory of all your things and sorting them into piles to keep, give away, donate, sell, or throw away. Measure your new space with a tape measure so you can determine what furniture will fit and what needs to go. There are some items that you should be able to easily let go of such as duplicate items, unwanted/unworn clothing, miscellaneous gadgets, clutter, and anything you’re currently paying to keep in storage.

Finding the Right Home

Once you see all the homes on the market, you may begin to feel a little overwhelmed. Remind yourself that this simply means you have plenty of options, ensuring you find the right home without making any compromises on wants and needs. So, what should you look for? You might already have your own list of must-haves, but don’t lose sight of the big picture, which is a home that is smaller, accessible, safe, and senior-friendly.

Start by pinpointing the best location, whether that’s near family or close to stores, health care facilities, and entertainment. Don’t forget about senior-specific amenities as well, such as the size and layout. For example, a claw-foot tub is gorgeous, but an accessible bathtub/shower is both reasonable and safe. You will likely find that whatever home you choose needs some modifications to make it accessible, such as grab bars, ramps, or widened doorways, so be sure to factor this into the price.

However, it is important to note that downsizing doesn’t necessarily mean moving to a smaller home. If you need additional assistance with activities of daily living, your health has declined, or you’re experiencing safety concerns such as trips, falls, or confusion, now could be the time to put some serious thought into downsizing to an assisted living facility. Schedule some assisted living tours, and you’ll see that assisted living may not be what you’d expect because you can still be self-sufficient in this environment. The average monthly assisted living cost in Orlando ranges anywhere from $1,500 to $7,770, so you’ll want to do an extensive search and take your time.

Many seniors have to downsize. Instead of toying with the idea, take the first step in actually doing it. Although it’s a big step, the benefits of doing so make it a leap worth taking in your golden years.

Guest Post By:

Michael Longsdon

mike@elderfreedom.net

Elder Freedom – Empower the Elderly

http://elderfreedom.net