5 Ways to Finance a House Flip
So you’re ready to start flipping houses. You must understand one of the most important aspects of a real estate investment is financing. The money you secure for your flip can be used to purchase the property, renovations, and to sell the property. Here are five financing options to consider for fix and flip success.
- Your own money. If you have money tucked away for a raining day you can dip into that savings to fund your house flip. An easy flip (requiring only cosmetic repairs) can be turned around in less than a month.
- Partnership. A lot of people start their fix and flip venture with a partner to gain access to a capital. The investor partner puts up the money while the project manager supervises contractors and or does the work. The profit sharing with the investor is typically negotiated at a 50-50 split but that is certainly not set in stone. Finding a financial partner is an excellent way to get started, however when it comes to the profits or the losses, be sure to negotiate the best deal for both sides and to put the details of the deal in writing.
- Hard Money Lenders. A Hard Money Lender is an excellent option if you know you can fix and flip a property quickly. Hard Hard Money Lenders provide short-term financing, usually less than a year long. Although they have flexible terms, the interest rate can be steep.Typically, Hard Money Lender charges an interest rate of 12 to 18 percent plus 2 – 5 points. One point is equal to one percent of the loan amount. This simply means that the quicker you repay your loan, the less your total loan repayment.
- Home Equity Line of Credit. If you are new to the house flipping business, a HELOC is not recommended as your first choice for financing. HELOCs are a much more riskier option for financing a flip. A Home Equity Line of Credit is a personal loan against the equity in your home. HELOC financing requires a lot of self-discipline and leaves little room for errors. Banks do offer very attractive interest rates. However, keep in mind that the borrower is personally on the line for the repayment of the loan and the amount of money loan corresponds to your risk tolerance
- Portfolio Line of Credit. The Portfolio Line of Credit is a perfect financing option for the diversified investor. This is not an ideal first choice for new flippers particularly if you have all your eggs in one basket. But if you do have healthy portfolio, substantial equity or own multiple properties, you could garner a much better interest rate. A Portfolio Line of Credit is based on your collateral and the value of your portfolio (stocks, bonds, property…) This option enables you to purchase real estate fast and with cash, which certainly gives you an advantage in purchasing properties.
If you need additional information about funding your house fix and flips, please contact Showcase Realty at 704.997.3794. Our well-trained staff of professionals are ready to help you with your investment needs.
To learn more about the 5 Ways to Finance a House Flip listen to our radio show, How’s the Market: Real Estate. Real Answers, this Saturday from 5-6 PM on 1110 WBT. We will be joined by Wes Pruitt from Reliance First Capital.
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