Case Study: How an Investor Turned $15,000 into a Profitable Fix-and-Flip with Private Lenders
Real estate investing with limited capital is possible when leveraging private lenders. This case study highlights how an investor with $15,000 successfully financed and profited from a fix-and-flip project using private lending up to 85% of the purchase price of the property and 90% of rehab costs.
Note: LTV (Loan To Value) refers to the ratio of a loan to the value of an asset purchased, while ARV (After Repair Value) is the estimated value of the property after renovations are completed.
Investor’s Profile and Initial Capital
Investor: First-time real estate investor
Initial Capital: $15,000
Investment Goal: Short-term profit through fix-and-flip
The investor was new to real estate but had done thorough research on the fix-and-flip model, where a property is purchased, renovated, and sold at a higher price.
Finding the Property
The investor identified a distressed property listed at $100,000. A distressed property is one that needs repairs and is often sold below market value. After analyzing market trends, the investor estimated the After Repair Value (ARV) at $170,000, meaning that after renovations, the property could sell for that amount. The estimated renovation cost was $30,000.
Securing Private Financing
Private lenders often focus on the property’s value rather than the borrower’s credit history. In this case:
85% of Purchase Price: $85,000 loan (85% of the $100,000 purchase price)
90% of Rehab Costs: $27,000 loan (90% of the $30,000 renovation costs)
Total Loan Amount: $112,000
Investor’s Contribution: $15,000 (covering the remaining purchase price, closing costs, and part of the renovation budget)
Interest Rate: 10% annual, interest-only payments (interest-only means that monthly payments cover only the interest, with the principal repaid at the end of the loan term)
Loan Term: 12 months (the investor had one year to complete the project and repay the loan)
Why Private Lenders Lend to Real Estate Investors
Private lenders are motivated by high returns on their loans. Unlike traditional banks, private lenders charge higher interest rates, often between 8% and 15% annually, depending on the project and borrower. In addition to interest, they charge 'points' (a percentage of the loan amount) upfront. For example, a 2-point fee on a $100,000 loan means the borrower pays $2,000 at closing. These fees compensate lenders for the risk they take, as fix-and-flip projects can be unpredictable. Lenders are also secured by the property itself; if the investor defaults, the lender can repossess and sell the property, often recovering their investment.
Executing the Project
The investor purchased the property for $100,000 and spent $30,000 on renovations, including:
Kitchen upgrades with new appliances and modern finishes
Bathroom remodeling with updated fixtures
Landscaping to improve curb appeal
Basic repairs like painting, flooring, and plumbing
The total investment was $130,000. Renovations were completed in 5 months, allowing the investor to sell quickly.
Selling and Profit Analysis
The investor listed the property for $170,000 and sold it within a month. The financial breakdown was:
Selling Price: $170,000
Loan Repayment with Interest: $117,000 (including the original loan and interest payments)
Closing Costs and Realtor Fees: $10,200
Total Expenses: $127,200
Net Profit: $42,800
This profit was achieved in less than a year, demonstrating how private lenders can facilitate profitable real estate investments even with limited initial capital.
Lessons Learned and Key Takeaways
Private lenders provide quick funding with flexible terms, essential for time-sensitive projects.
Accurate ARV estimation is crucial for calculating potential profit.
Efficient project management keeps renovation costs within budget and ensures timely completion.
Networking with reliable contractors helps maintain quality and speed.
The investor’s $15,000 capital grew significantly through strategic financing and well-executed renovations.
Conclusion
This case study demonstrates that even with $15,000, real estate investors can achieve substantial profits by leveraging private lenders. By understanding financing terms like LTV and ARV, managing renovations efficiently, and selling at the right price, investors can build wealth through real estate.
Ready to finance your investment? Explore RealtyQ’s trusted private lenders for tailored financing solutions today.
