How To Finance a House Flip
House flipping is one of the easiest ways to make money without breaking too much of a sweat, but only if you get it right. You will need to do a lot of research and get well connected with realtors, appraisers and other stakeholders who are deep into the real estate sector so that they can tip you off on foreclosures that have great potential. When it comes to how to finance house flipping projects if you are just starting out, you may find things a bit hard if you do not have financial backing or enough savings. Considering that most novice investors are young people probably on their first job and with no substantial savings, there are actually many ways to get capital to finance your flips, without ever touching your own money. Here’s how to finance house flipping if you do not have enough capital:
A private lender may be of great assistance if you are fresh in the flipping business, because their terms are usually a bit lenient compared to hard money lenders. It can be a friend, relative colleague or just an investor who will be more of a silent partner as long as you are able to refund the money once you finalize the flip and make a profit. Most private lenders will not even ask you for monthly payments on the loan, just an accrued interest once you make the sale. This is a less risky way to make money through flips, without ever touching your money. However, you will need to find properties in markets that have a high buying rate compared to the selling rate so that you can flip within very minimal time. This is because private lenders will start getting impatient if you take too much time before you make a sale. If you have to choose between a private lender and a hard money lender, it may be advisable to go for the latter.
Unlike private lenders, hard money lenders usually charge high interest rates on loans and have strict penalties for defaulters. The good thing about such lenders is that they are willing to loan funds to people who cannot access loans through banks. Hard money lenders rarely care about your credit score or what reads on your bank account. To them, what matters most is what you sign up as security while applying for the loan such that in case you default, they will sell it and recover their investment.
If you cannot get funding through a bank or a private lender, hard money lenders will be waiting for you on the other end with welcoming arms. The major disadvantage of funding your flips through hard money lenders is that you`ll incur fines and penalties if there is a delay in making payment. Real estate can be unpredictable, and sometimes the house repairs end up taking double the estimated time and getting a buyer for the fixed house also ends up taking too much time. A private lender may sympathize with your situation, but not a hard money lender. You’ll still be expected to honor the terms of the agreement, whether or not you`ve sold the property.
For people who desire to make faster flips, banks are not advisable because the loan processing duration will be enough to ensure you lose a property with great potential to competitors. If you are certain that you can meet the terms of private or hard money lenders, this is the route you should go if you want to get quick & easy funding for your flips. This is how to finance house flipping while the deal is still hot and make a quick profit.