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Real estate is one of the most lucrative businesses to venture in. The return on investment, especially for the fix and flip projects, is enormous. A recent report by Attom Data indicates that house flippers raked in huge profits in 2017 from their fix and flip projects. More than 200,000 homes were renovated in 2017, and house flippers made an average of $68,143 per property.
Unfortunately, you cannot succeed in real estate business if you don’t have access to capital. You will need money to purchase and renovate the property. You will also need money to market the property after renovation and even cater for holding fees such as HOA and homeowner’s insurance. Generally, real estate business is capital intensive, and it requires adequate planning ahead of time.
At last, there is hope!
Nowadays, real estate investors seeking to venture into the fix and flip business have all the reasons to smile. Raising money for a fix and flip project has become easy for investors who already know that mainstream banks aren’t the only players in the financial world. There are a host of financing options for investors out there.
Fix and flip loans
These refer to financing tools used by real estate investors to finance their short-term real estate projects. These loans are easy to access, and they can provide you with up to 80 percent of the property’s value. The funds are available to almost every real estate investor as long as they have identified a lucrative fix and flip opportunity.
A few years ago, an investor could walk into a local bank and secure an investment loan at a reasonable cost as long as they had a good credit record. But as it stands, it has become tough for an investor to access an investment loan from a bank. These institutions have established a lot of restrictions that bar investors from accessing capital.
Before approving your loan application, most of the banks will ask you to raise at least 20 percent down payment. If you manage to get the mortgage, it will come with various costs attached on to the monthly payment. The biggest challenge with applying for a mortgage is that the bank will restrict you on the number of properties you can finance at a time.
Besides, there are additional challenges such as collateral for the loan and debt to income ratio requirements. The bank may also be reluctant to finance fix and flip projects that require significant repairs.
It refers to funds obtained directly from a private citizen. An investor can obtain the money from a relative, friend or even a professional private lender. Unlike traditional bank loans, private financing is quite flexible and easier to access. The tricky bit with private financing is that it can be quite expensive depending on the lender. Some lenders may charge interest rate as high as 20 percent per year.
Private funding usually involves short term loans, which are usually repaid within 6-24 months. Also, most of the private lenders will not loan out more than 75 percent of the value of the property. The best thing with private financing is that you don’t necessarily need to deposit a down payment.
Although getting money from a private lender seems to be the best option for a real estate investor, the biggest challenge lies in finding a good lender. To begin with, you can talk to your wealthy friends and relatives to lend you money to finance your project. You might be surprised at how wealthy people are looking for alternative investment vehicles.
A partnership can also be a great tool to finance your real estate project. Many times, flippers get frustrated when they spot lucrative opportunities but lack the capital needed to finance the project. In such a case, bringing a partner on board can help. In such an arrangement, you can share some tasks with your partner, which makes your work easy.
Tasks that can be shared include searching for an appropriate property, planning and managing the project and financing the project. The good thing with partnerships is that you share the returns based on what each of you brings to the table.
Sources of Funding
Flipping houses and other structures in Florida can be incredibly profitable. Flippers can expect to earn thousands of dollars with a well chosen property. At the same time, it’s that very first step that can be the hardest. Unlike some other financial ventures, starting a business as a flipper requires a lot of capital. Buyers must be prepared to put down a sum of money on the property that can easily run into the five figures. In addition to this initial money, the flipper needs to pay other kinds of costs such as the cost of materials to make the changes needed to make a profit. Buyers must pay lawyers in the state of Florida to make sure all is done legally as well as other additional closing costs.
After several successful flipping, someone with a history in the field can easily have all the cash they need on hand to get any flip done. Those who are just starting out in the field of Florida home flipping may need Florida fix and flip loans. In that case, they’ll need to think about the kind of funding that offers them the best combination of flexibility and ready access to cash.
There are many ways to find the kind of funding that can bring your plans for a home flipping career in Florida alive. Keep in mind that it can be hard to get bank loans, especially if you’ve never done this kind of work before. You should know what your exact plans are for each property and why. Working closely with an appraiser with many years of experience and a skilled contractor can get your flipping plans off the ground. This will also help you decide exactly how much money you need to complete the job you want. Knowing what kind of finances you need can make sure you’ll reach your profit goals.
An appraiser can provide you with a realistic value of the property after you’re done with renovations. This is known as a ARV. A contractor will generally tell you how long it will take and how much you’ll be expected to pay. If you have real estate experience, you can tap into your own base of knowledge for these all important numbers.
You can also tap into other sources of funding instead of banks. Many Florida residents find they need to work closely with other residents in order to get things done like schooling for kids and making sure the roads are cleared. The same can be true of those who are planning to invest in real estate. Your neighbors and friends might know exactly how to get things done and have some extra cash you can use.
Establishing a network of connections can also help with other aspects of your plans. People can help you find lower prices for materials. They can also help you find sources of cash such as your already accumulated assets like a 401K or the mortgage in your home. They can help you find lower interest rates than you might otherwise face as well. They may also be able to negotiate with the bank on your behalf, especially if you have prior experience. This can be the beginning of a deeply satisfying side job or a full time career.