If you have a knack for real estate and love the idea of buying homes, fixing them up and selling them for a profit, you may be interested in the fix and flip approach to real estate investments. The key to this strategy is securing the right funding. There are a number of different kind of loans available, and you can decide which one is right for you depending on your experience with fix and flip projects, the condition of the property and how quickly you want to sell the home.
For those who are interested in flipping a home for the first time, the best option is a private lender or hard money lender. These lenders will work with novice home flippers, but you need a strong credit score. You can typically borrow up to 65% of the value of the home following repairs. The lenders will ask for a fee that is a percentage of the home’s future value after renovations. These loans are usually short-term and last for less than a year, but if the home is sold quickly, the loan can be repaid promptly.
For those who have undertaken fix and flip projects in the past, a bank loan is a viable option. The bank may ask to see proof of two years’ experience flipping houses, and will typically charge a lower interest rate at 5 or 6% compared to the 8-13% from hard money lenders. Banks will lend to money for flipping if you have an official business, a healthy credit score, and a proven track record of success in similar projects. You may have to wait several months to secure bank financing.
If you are a veteran at fixing and flipping your real estate investments and need the money in a hurry, crowdfunding may be the best course of action. Interest rates can be high, between 8-13%, but you can secure funds in a matter of days and don’t have to worry about missed opportunities. You may be able to borrow up to 85% of the purchase price and 65% of the home’s value following renovation. Crowdfunding is a way for people who want to borrow money to connect with investors who are willing to lend. When the house is fixed up and sold, the loan and investors are paid off.
Fixing up and selling homes is a challenging and rewarding approach to real estate investing. Financing for the first project may require fees and relatively high interest rates, but as investors become seasoned, they can take advantage of other financing opportunities, such as bank loans and crowdfunding.