Financing Costs are costs you incur if you are getting outside funding to fund the purchase and/or repairs for your rehab projects. Financing Costs include Loan Interest Payments, Points & miscellaneous loan fees.
FAQ
What are Typical Financing Costs & Amounts?
Typical Financing Costs
Here's a list of typical Financing Costs and average amounts that you will likely have on your rehab projects.
Interest Payments (7 to 15% Interest during Holding Period) - Your interest rate will vary widely depending on the type of financing, (hard money, private, conventional), and your individual financial situation. Click here to learn more about Loans for Flipping Houses
Points (2 to 3% of the Loan Amount) - Again, depends on the lender, but you should expect to pay a few % points upfront.
Other Closing Costs ($750 to $2,000) - The Lender will also likely charge ridiculously inflated junk fees for miscellaneous items.
Loan Origination Fee
Appraisal Fees
Underwriting Fees
Credit Report Fees
Processing Fees
Rehab Draw Inspections ($100 to $200 per inspection) - Your rehab loan will be divvied up into a 'loan draws'. When you request a loan draw payment, the Lender sends a 3rd-Party Inspector to inspect the property to ensure the project is ready to receive the next loan draw payment.
WARNING
Make sure you ask to see your Lender's Fee Schedule upfront, so you can factor all of the financing costs into your analysis and prevent any surprises at closing.
How Do Most Flippers Pay for Their Deals?
Financing costs only matter if you borrow, and most flippers do. Here is how deals analyzed in FlipperForce were funded, and how cash and financed deals compare.
Financing Costs Example
In this example, a rehabber purchased a property for $100,000, that needs $50,000 in repairs and is planning on reselling the property for $200,000. The rehab is scheduled to take 5 months to complete, but the lender requires a minimum of 6 months of payments.
The Hard Money Lender will lend up to 70% of the ARV with a 12% interest rate, 2% points upfront, with $1000 in origination fees, plus 4 rehab draw inspections of $150 each.
Loan Amount = ARV x % of ARV Loan Amount = $200,000 x 70% Loan Amount = $140,000
Monthly Interest Payment = (Loan Amount x Annual Interest Rate) / 12 Months per Year Monthly Interest Payment = ($140,000 x .12) / 12 Monthly Interest Payment = $1,400
Total Interest Payments = Monthly Interest Payment x Loan Term Total Interest Payments = $1,400 x 6 months Total Interest Payments = $8,400
Loan Points = Loan Amount x Points % Loan Points = $140,000 x .02 Loan Points = $2,800
Rehab Draw Inspections = Draw Inspection Amount x # of Inspections Rehab Draw Inspections = $150 x 4 Rehab Draw Inspections = $600
Financing Costs
Amount
Interest Payments (6 Payments)
$1,400/mo
8,400
Points (2% of Loan)
$2,800
Other Closing Costs
$1,000
Rehab Draw Inspections ($ Draws)
$150/ea
$600
Total Financing Costs
$12,800
INSIGHT
As you can see from the example above Financing Costs can add up to a substantial amount, so it's important to make sure you accurately calculate the amount of financing costs that could be incurred.
Talk to your local lenders to learn about the lending rates and terms they charge for funding for your rehab projects.
Know Your Max Offer Before You Make It
The FlipperForce House Flipping Calculator walks you step-by-step through every cost in your deal: buying, rehab, holding, financing, and selling. In minutes, you'll know your projected profit and the most you can pay for the property. No more napkin math, no more missed costs, no more overpaying.
