Interested in flipping a property but don’t have the cash to invest? This is the case for most investors, and the good news is that there are several solutions to allow you to take advantage of this investment opportunity without having to put a big chunk of your own money into it.
This article discusses the process of getting a loan to flip a house.
How Much Does Flipping a House Cost?
Generally, you should expect to spend more money on flipping a property than you would on a house that you plan to live in. That’s because you also need to factor in the cost of renovations alongside the upfront purchase cost. Other costs include property taxes, and homeowners’ insurance, which you’ll need to pay while you own the property.
The good news is that you can at least finance your project with a loan rather than having to fork out all the money yourself. But you will need some cash for your loan down payment, so it’s typically not possible to flip a property with none of your own money at all.
Hard Money Loans
Generally, the best loan to use for flipping a property is a hard money loan.
Hard money lenders don’t usually look at your creditworthiness when determining your eligibility for a loan. Instead, they’ll consider the property, which is typically used to secure the loan.
A hard money loan is a short-term, high-interest loan, which offers the flexibility and speed of funding you’re probably looking for when flipping a property. They have terms generally spanning one-to-five years, requiring interest-only monthly payments. Once you’ve flipped and sold the property, you can use some of your profits to repay the loan.
While hard money loans can be a great option for property flips, they might not be right for you. Seek loan advice if you’re unsure whether a hard money lender can provide the financing solution you need.
Private Lenders
You can also fund a fix-and-flip project with a loan from a private lender.
Private lenders have substantial capital and are looking to generate income with no effort on their part. They generally operate like traditional lenders (i.e. they charge interest), although some offer better terms and rates.
There are a few ways to find private lenders, including online and at real estate networking events.
Crowdfunding
Crowdfunding is when you finance a loan from a collective group of institutions or individuals. The lenders (called investors) contribute a small portion of the loan and charge interest on this percentage.
There are crowdfunding websites that exist specifically for people looking to buy and flip houses, with different maximum loan amounts.
The Bottom Line
If you don’t have enough cash to get started with flipping, it’s worth considering low-risk loan options. This is a great way to get onto the market, and when you sell your first property (providing everything went successfully), you’ll then have cash to invest in a second.
Also read: Top Ways to Earn Money Online for Students?