House flipping is a great way to make a profit through real estate investment. Unfortunately, though, it can be quite expensive to perform all of the necessary renovations that come with the territory.
If you’re getting into this business, you’ll need to be familiar with your financing options.
Loans for house flipping are different from the typical home improvement loans you would get through the NRIA program, and these projects also don’t always qualify for traditional financing options. But you shouldn’t let this discourage you! There are still plenty of accessible financing options for those looking to fix and flip a property.
Read on for an overview of six of the most common financing options homeowners and real estate investors take advantage of when flipping houses.
Traditional financing from your bank may be an option for some homeowners, depending on their credit score and their bank’s policies regarding home improvement loans. It’s often the most comfortable financing option for those who qualify, as you can obtain funding through a financial institution that you already have a relationship with.
However, there are some things to watch out for when taking loans from the bank. Interest rates tend to be quite high, and there are sometimes obscure penalties that you wouldn’t expect. Make sure you understand your bank’s policy before borrowing.
Real Estate Investors
You can be sure that you’re not the only homeowner in your area interested in real estate investment. So if you’re having trouble raising funds and you’re willing to share your eventual profits, you shouldn’t have too hard of a time finding real estate investors to go into business with.
You don’t have to limit yourself to industry professionals, either. If you have willing family or friends with the funds, they can act as personal investors to help you with the financing. Be sure to compensate your investors by either paying them interest rates or a portion of the final profits.
Hard Money Loan
You also have the option to get your funding from money lenders in the form of a hard money loan.
These short-term loans are relatively easy to get approved for. The money lenders can usually get you your money in just a couple of weeks, and you will typically pay back the loan in one or two years.
Money lenders do charge interest, of course, so you’ll have to account for this in your budget.
Home Equity Line of Credit
While often home improvement loans don’t cover fix-and-flip jobs, some varieties can be used for these projects. One of these is called a home equity line of credit, or HELOC.
But how do home improvement loans work? Well, in the case of a HELOC, it’s sort of like getting a credit card for your house. The bank will use the value of your home to determine your credit limit and allow you to borrow funds within this amount.
You must account for interest rates, but you only have to pay interest on the funds you take out. Plus, the financial commitment shouldn’t be too severe as most homeowners decide to borrow from a HELOC in small amounts over time.
The recent surge in the popularity of crowdfunding has made real estate investment more accessible for many house flippers. There are plenty of real estate crowdfunding platforms that allow investors to collect small amounts of money from many people at once, making the financial burden easier on everyone. Investors are typically compensated via interest or a profit percentage.
If you participate in a 401k plan through your employer, you may have the option to borrow against it. If your plan allows this, it’s a great way to get a loan without having to pay interest to someone else. It’s almost like borrowing money from yourself!
Of course, your retirement may be in danger if your flip doesn’t generate the profits you were hoping for, so be sure to keep this in mind when considering this financing option.
See How Homeowner Funding Can Help You
House flipping is an expensive and labor-intensive endeavor, so if you’re going to take on this task, you’ll want an Owens Corning preferred contractor like Homeowner Funding by your side along the way.
That being said, once you get capital to pay for the renovation work, flipping houses can make you more than enough profit to justify the expense. That’s where Homeowner Funding can help. Visit our website today for more information about our financing options!