Some new to the flipping business might leverage the equity in their home, refinancing their personal residence to embark on their first flipping project. Is putting your actual house on the line to flip another house a good idea? I’ll leave that for you to decide.
Another strategy is to take out a small conventional loan to purchase the house, and then take out an unsecured loan to cover the cost of remodeling. This strategy is basically like getting a credit card to pay for your flipping project, and paying bills with a credit card is never a sound financial strategy. So why not just go to your friendly neighborhood bank?
Many novice real estate investors are lured to banks by the prospect of lower interest rates. But conventional lenders fall short in almost every respect the case of flips. First, the tedious application process could cause you to miss out on the best investment opportunities, as foreclosures and short sales move quickly and traditional lenders simply can’t keep up. If the property you have in mind is anything less than live-able condition, your application will be denied outright. But there’s a bigger reason to avoid going to the bank to finance flips
Without exception, even if a bank miraculously finances your flip, the loan will not cover the cost of your renovations. Ever. Banks give loans as a percentage of a properties current value, your bank loan might cover 90 percent of a 50,000 dollar shack and this loan will get you that shack but nothing more. If you want to remodel the home thereafter you will need to take out another loan.
So home equity, unsecured loans, and even banks fall short when it comes to financing flips, but not all hope is lost.
A cursory search of the term ‘hard money’ might make you balk at the double-digit interest rates offered by these lenders. Understand that those double-digit interest payments don’t amount to much as your plan should be to sell the property within a few months.
What sets hard money apart in the case of flips is that these loans are given as a percentage of the properties value after it’s been repaired. Unlike with a bank loan, with hard money not only can you get enough money to purchase a distressed home, but you also get the money you need to improve it.
This factor sets hard money apart from other types of financing, be it bank loans, unsecured loans or equity loans. Home equity loans put your house at risk, unsecured loans are expensive, and bank loans will not cover the full cost of a flipping project. If you want to get into the flipping business, your best bet is, and likely always will be hard money.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.