Day 3

Module 1 | Foundation & Mindset

Today's Concept

Liquid capital requirements, reserves, and the myth of 'no money down' flipping

The Core Problem

Reality television portrays house flipping as a no-money-down activity where anyone with a tool belt and charm can profit. This is dangerous fiction. Flipping requires capital. The capital may not all be yours, but someone must bring capital to the table. Understanding your capital position and your capital gap is essential before pursuing deals.

The Lesson

A typical flip requires four capital components. Knowing your position on each reveals your true readiness.

Acquisition Capital: The funds needed to purchase the property. This includes the down payment (if using financing), closing costs, title insurance, and initial escrow deposits. Hard money lenders typically require 10-20% down plus 2-4 points upfront. On a $200,000 purchase, this means $20,000-$40,000 down plus $4,000-$8,000 in points and closing costs. Total acquisition capital: $24,000-$48,000.

Rehab Capital: The funds needed to renovate the property. Rehab costs range from $25 per square foot for cosmetic updates to $50+ per square foot for full gut renovations. A 1,500 square foot property needing medium renovation requires approximately $52,500 in rehab capital. Hard money lenders typically fund 100% of rehab costs in draws, but you must complete work before receiving reimbursement.

Holding Capital: The funds needed to carry the property during renovation and sale. This includes loan payments, property taxes, insurance, utilities, and lawn maintenance. On a $200,000 property with hard money at 12% interest, monthly holding costs range from $2,500-$3,500. A 4-month hold costs $10,000-$14,000. You must pay these costs monthly, often before any sale proceeds arrive.

Reserve Capital: The emergency fund for cost overruns, extended timelines, and unexpected repairs. Smart operators maintain 15-20% of total project cost in reserves. On a $300,000 total project, this means $45,000-$60,000 in reserves. This capital sits unused in most deals but saves the project when surprises emerge.

Real-World Application

A complete capital analysis for a typical first flip in Indianapolis: Purchase price $150,000, rehab budget $45,000, holding costs $12,000, reserves $30,000. Total capital requirement: $237,000. With hard money financing at 85% LTV, the investor brings $22,500 down plus $7,500 in points and closing costs. The hard money lender funds rehab in draws. The investor still needs $30,000 in reserves and $12,000 in holding cost coverage. Personal capital required: approximately $72,000 even with generous financing.

Key Takeaway

Calculate your total capital requirement honestly. Identify your available capital. The gap between requirement and availability defines your financing strategy. Do not pursue deals until you know where every dollar will come from.

Today's Action

Complete a personal capital inventory. List all liquid assets: checking, savings, investment accounts, retirement accounts available for loan, HELOC capacity, and assets you could sell. Total these amounts. Then calculate the capital required for your target first flip using the four-component framework. The difference is your capital gap.

Today's Deliverable

Personal capital inventory and gap analysis

Clozo Academy Proprietary Curriculum | The Fix and Flip Growth System