Where to Get Funding for Your Fix and Flip Business
Fixing and flipping provide very attractive investment opportunities. The profits are amazing, and with the right strategy, you can expect to recover your investment and cash in on the profits in a short amount of time.
However, you often need to be able to have quick access to funding for you to be able to make the most out of the opportunities that buying foreclosed and distressed properties can offer. Also, it will require a lot of capital to get a house fixed and ready to sell.
Here are some of the sources of funding that are available for you:
– Own savings. Do you already have a considerable cache of capital and are simply looking for an investment opportunity that has a high return and quick turnaround time? You can take funds out of your savings account or cash in on your stocks and bonds to use them for your real estate venture.
– Loans from friends and relatives. Do you have friends and family who are willing to support you in this business venture? These are people who know you and believe in you enough to know that they will recover the loan you extended to them. It is generally easier to convince family and friends to give you a loan, much easier than convincing bank personnel and lenders to give you that same loan. Even then, mixing money and relationships can get complicated, especially if you are not able to pay the loan as you have promised. You can make the affair more business-like by getting the loan in writing. You can also offer to pay interest on the loan extended.
– Partnerships. Look for partners that can provide part of the funding for your fix and flip venture. A usual scenario is for you to provide the sweat equity (working on the repairs and renovations of the house) while the partner or partners provide the funding. You can also agree on how you will be splitting the profits.
– Bank loans. This type of loan offers a low-interest rate. However, it requires that you have a good credit rating, can provide significant collateral for your loan and already have considerable capital on hand. You can go to your local bank to request for a mortgage loan. The bank will provide you options as to the length of the loan and the other related terms. The downside is that you will need to pay the down payment. Also, it may be harder to get a loan for a house that needs a lot of work, which is the case for most properties that get rehabbed. Traditional loans also take longer to process.
– Home equity loan or line of credit. This is basically getting a second mortgage on a property where you have already built some equity, such as your home. The bank can extend you a home equity loan or line of credit which you can use as you work to complete your rehabbing project. The drawback with a home equity loan is that it can put your house in serious risk in the event that you are unable to keep your home equity loan payments updated. You need to be sure that you are ready to take this risk in case it takes longer than expected for you to sell the newly rehabbed property.
– Hard money loans. This works best for newbies in the flipping business, who do not have a good credit line and who do not have the funds to pay for the down payment of the house that is being rehabbed. Expect the interest to be quite higher than the interest but this type of loan does not require you to have a good credit rating and processing time is also much quicker.
Choosing which funding source is best for you depends on your particular situation, your tolerance for risk, the type and condition of the property, as well as your level of experience in the fixing and flipping business.