Flipping houses is appealing to many people, but actually doing it is tough. One of the toughest parts of flipping is getting the money to buy a flip. There are a number of ways to finance a flip. I flipped 26 houses last year and financed all of them.
What are the different ways to finance a flip?
You could pay cash for a flip, but most people don't have the money to buy the house, pay for carrying costs, and repair the house. You actually make more money financing flips anyway.
https://investfourmore.com/2015/06/12/should-you-use-cash-or-financing-when-flipping-houses/
Here are some of the ways to get the money for a flip:
- Hard money lender. A hard money lender specializes in financing flips. Hard money is not from a bank, but an investment company. The company borrows money from an investor, then loans that money to another investor at a higher rate. Hard money used to cost 14 percent and 2 or more points. Rates have dropped to under 10 percent for many lenders. Some hard money lenders will lend up 90 percent of the purchase price and all the repairs.
https://investfourmore.com/2017/09/20/podcast-119-hard-money-loans-fix-flips-ben-shaevitz/
- Private Money. Private money is from an individual who lends money to a flipper. Many hard money lenders call themselves private money lenders, but that is misleading. I borrow money from many private money lenders. They are people I know personally. Some of my lenders will give me all of the purchase price and repairs on a deal.
https://investfourmore.com/2015/09/21/how-to-find-a-private-money-lender-to-flip-houses/
Crowd Funding. Crowd funding is very similar to hard money, but there are many investors loaning smaller amounts of money. https://investfourmore.com/2017/07/06/podcast-108-crowdfunding-offers-smaller-real-estate-investment-amy-kirsch/
Local Banks. I also use local banks to finance flips. The terms and rates can vary greatly based on the bank. My banks want 25 percent down, and do not finance repairs, but they offer rates around 5 percent.
https://investfourmore.com/2014/03/19/finance-fix-flips-hard-money-private-money-portfolio-loans/
- Partners. One way to get started flipping is to use a partner. A typical partnership has one person lending all the money and the other person doing all the work. A typical split would be 50/50 in the profits.
https://investfourmore.com/2015/04/27/should-you-use-a-partner-when-investing-in-real-estate/
What do you need besides financing to flip?
Even with financing you need some money to flip houses. Besides money you need great contractors, and great deals. The link below shows all my active flips.
https://investfourmore.com/flips/
I used to flip homes in LA before that called it house flipping. My most important person besides the contractor was my broker who always had buyers before we were done with the remodel. She was fantastic and a great partner. Do you work with a broker?
Great point! I am a broker myself which is a huge advantage.
Ahh. I see. Saves you money and time too.
What are the qualifications you must have in order to get a loan from a hard money lender? for example Good credit, collateral or a certain amount of money in your bank?
Good question. They are all different in what they require. The biggest requirement is the deal makes sense and you can make money with it. Credit can be important, but not a deal killer. Not like with a regular bank. They will want to see some money in the deal for down payment, either 10 or 15 percent of the purchase price. When they finance the repairs they usually pay it out in draws after the work is done. They do not give you all the money upfront. The loan will go againts the house you are flipping.
So they only finance 85 percent or a little more of the houses price? So basically you can go to a hard money lender with a business plan and a financial lay out of how much the costs are to fix the house and how much you could sell it for after. With this information you could be able make the deal and get the loan from them? It sounds really risky on the lenders side but I am sure they have their ways of making it always beneficial for them. P.s If you have time check out my vidoe on how I house hacked my first investment property. Thanks
The hard money guys will make sure there is enough room to flip the house. If the deal goes bad they can foreclose on the house. They should have enough room to be fine.
They usually fund 85 percent of the purchase and up to 100 percent of the repairs. You can find guys who will do a higher percentage of the purchase but they charge much higher rates.
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