How To Get Money To Start Flipping Houses – You’ve done your homework, know the local real estate market like the back of your hand, and found the perfect home to flip. The big question now is how to get the money to flip a house?
Here are 5 truly proven ways to not only finance your home purchase, but secure the capital you need to make the necessary upgrades and repairs to sell your home for top dollar.
How To Get Money To Start Flipping Houses
5 tried and true ways to get money to flip a house include finding an investment partner, hard money loans, personal lenders, traditional banks, and using your own money and assets. Each home flipping financing method has its pros and cons, so let’s take a closer look at each to see which financing option is right for your home flipping business.
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Partnerships can take many forms and can be structured in different ways depending on the needs and preferences of the participants.
The main goal when looking for a home exchange partner is to find a partner who has some or all of the equity to buy and renovate the home.
As with any partnership, remember that everyone has to bring something to the table for the partnership to work. If you use an investment partner to finance your home transfer, you can add value to the partnership by finding the deal, providing equity, or managing the home from start to finish.
If you want to use a partnership to finance your real estate, you can expect to share the income with your partner in order to access the partner’s capital. The distribution of the potential profits from house flipping can be divided in any way that is fair and favorable to all parties.
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As for an investment partner, the general profit split is 50/50, where one partner provides the necessary funds to flip the house and the other does all the work and management of the house.
Hard money loans are considered asset based loans, meaning they do not rely on your credit score or financial ability, but rather rely on the home itself as collateral for financing the deal.
When using hard money lenders, they use the value of the home to make a loan to buy and renovate the property, and they also mortgage the home like a traditional lender to secure their money.
Hard money interest rates are much higher than typical home loans and can range from 10 to 15% depending on the particular lender and the risk they accept with the deal.
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In addition to the loan interest rate, hard money lenders usually charge points up front on the loan, as well as 2% to 4% of the loan value.
As you can see, hard money loans can be very expensive and can and should be used as a short term financing option. Any potential profit you can get from a flip can be quickly consumed by the high cost of money with hard money loans.
Also, hard money loans usually mean that the entire balance is paid on the loan, remember that there is a loan period of 6 to 12 months before maturity. So when using hard money loans, it’s important to stay on time to ensure you buy, refinance and sell before the full balance of the loan is due.
When looking at hard money loans and lenders, it’s important to do your homework to make sure you fully understand the deal you’re getting, and to make sure you’re working with a reputable hard money lender .
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If you are looking for more information on hard money and how to get it, the Hard Money Success Formula on Amazon is a great book to check out.
A private lender can be a great option for house flipping because there are usually fewer hoops to jump through and it takes less time to finance your home flip. Unlike large institutional banks, private lenders are usually free to lend as they see fit because they are lending their own money.
As there is little regulation or standard protocol when it comes to using a personal lender, it is important that all parties fully understand the terms of the loan and the agreement being made. For example, everything is calculated interest rate, term of the loan, payment schedule, what happens in case of default or if the house cannot be sold for a profit, etc.
One major disadvantage of private lenders is that they are difficult to find, which can take extensive research and networking to find.
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Conventional and institutional banks are the hardest places to get money for a house flip. The biggest problem with trying to get home flip financing through a traditional bank is that they don’t have any loan products that are suitable for home flippers.
In addition, banks are not set up to appraise a potential home or personal property using traditional appraisal methods such as personal assets and credit scores.
However, they are worth mentioning on this list because they can offer the best terms and lowest interest rates compared to other home financing options.
When trying to get a home flip or home loan through a traditional bank, it’s best to work for a business loan rather than a personal home loan. Banks do not offer suitable home loan products for short-term home flippers. Traditional 30-year mortgages that banks typically offer take too long to close and have too many flipping loan terms and conditions.
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When applying for a home flipping business loan, it is important to have a well-developed and defined plan that is explained in detail in a written business plan. When considering a business loan for any business, banks need to look at facts and figures and current and projected numbers to assess their risk.
For this reason, if you have no experience or experience in flipping houses, it is unlikely that the bank will give you a loan.
One of the riskier ways to finance a house flip is to use your own money or assets to finance the house flip. This method allows you to keep 100% of the profits, but you have 100% liability if things go wrong.
When it comes to using your own money to finance a home flip, there are 4 main ways including liquid cash, IRA, home equity and credit cards.
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Cash is king when flipping houses because it gives you the most options when buying a home and costs nothing more than opportunity cost.
If you’re reading this article, it might be nice to have a ton of free cash on hand, but that’s not your situation.
When considering how to get money for a home flip, IRAs should be a last resort for financing a home flip because they are designed for your retirement and future well-being. As a general rule, borrowing from your future to finance your current needs is a bad idea. There may also be steep penalties and fees for accessing the money, depending on your age and the type of IRA you have.
If you own your home and have equity in your home, this can be an attractive way to finance a home transfer. Because interest rates on home equity loans or lines of credit are much lower than other types of financing, you can also keep a home equity line of credit open, allowing you to finance multiple homes over time.
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Even if you can’t finance your entire home purchase with credit cards, you can consider using credit cards for home rehab. When using credit cards, due to the high interest rates, be careful when transferring houses. After all, the interest on the money can quickly increase your profit from the flip.
For more information on how to get money to flip a house, see our How to Flip a House article.
Jason has been a licensed Realtor since 2007 and is a 16-time real estate agent and home flipper to date. He is also the author and current editor of Flipping Prosperity.
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