You’ve watched all the fix and flip shows on the Discovery Channel and you’re ready to start your own house flipping business. One of the more difficult aspects of the whole process though isn’t the manual labor, it’s the financing. Discover the keys to financing your flipping business below.
Remember that flipping a house is more than simply buying the property. You’ll need funds for all the renovations you plan to do and you’ll have to take care of all the extra costs that come with owning property. That means you’ll have to bring the property taxes up to date. If there’s a lien on the property that can add significantly to your costs. You’ll also need homeowners’ insurance while you’re the owner.
So how do you get the money to meet all those costs, especially if you are new to fix and flip? There are a couple of alternatives.
Hard Money Lenders
Because a house you are flipping is not your primary residence it is unlikely that you’ll be able to get a traditional loan. Hard money loans are from private lenders that are more willing to take bigger risks for the chance of greater reward. As such, interest rates in the teens and up to five points on the loans are standard. Repayment terms are usually a year or less. One of the nice things about hard money lenders is that the more business you do with one, the better rates you’ll be offered on future projects.
It’s important to know that even hard money lenders see fix and flip properties as relatively high risk and may be unwilling to lend if you don’t already have a reputation for success. If you’re just starting out, you may need to look at the next option.
Getting initial loans for flipping homes has become so difficult that crowdfunding for flipping homes has become a whole subgenre of crowdfunding websites. These sites aren’t funded by small investors trying to help people make a better life. Instead, they are significant investors, usually with a minimum investment of $50,000, looking to make a serious return. Crowdfunding sites move more quickly than traditional lenders and are more transparent about associated fees.
If you are worried about borrowing money to start your fix and flip business, try starting with your own funds on smaller properties. Once you are established, even with the higher interest rates, flipping houses can be an amazing way to become your own boss and make big money.