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Finding the property is the first step to flipping a house. After you find your home, the next step is finding the finance you need for your flip. If you are not wealthy, you will need a loan to finance the four parts of your house flip. These parts include the house purchase, the holding cost, labor and material cost, and the realtor and closing cost. Your house flipping income is seasonal. Hence, finding a loan in a bank is not the best route for you. Therefore, here is a list of other loan alternatives for your flipping needs.
1. Friends and Family
This is the best loan option for you is you are a first-time flipper with family, friends, and acquaintances that are willing to invest in you. Your network and connections can be the right place for you to start to fix and flip loans. Also, the connection that you have with these people might give you the lowest interest rates. However, get the terms of the loan in writing and specify the interest rate and the return period. Also, follow all security laws and IRS laws that correlate with family investments.
Finding a financing partner will work best for you if you have exceptional market knowledge and if you have experience with flipping renovated houses. This will also be beneficial if you have a decent connected personal network. A partner will help you to find the flipping property, to plan and manage the renovation, and to supply the financing. You can even use one partner for all your projects or a different partner for each project.
3. Home equity Loan
This type of loan is best for those flippers that own homes with at least a twenty percent equity in their primary residence. A home equity loan will give you funding that you can draw as needed. All you have to do is pay the interest on the money that you use. However, if you want to borrow a significant amount of money, you might be required to have equity of more than twenty percent. This loan will also need you to have a good monthly income and a good credit to pay off your mortgage and HEL. You can get up to eighty-five percent of the value of your primary residence from most banks.
4. Personal Loan
A personal loan will work best for you if you are a house flipper who needs a small amount of money but has good credit. Also, this loan is flexible, and the rates are as low as five percent. All you have to do is pay the loan back in installments within a period of between five and seven months.
5. 401 (k) Financing
This is a loan for people that have significant retirement savings. However, it is not recommended for people that are close to retiring. All you have to do is to take a loan from your 401 (k) and pay the interest on the loan. Most 401 (k) accounts will let you borrow up to fifty percent of the balance.
6. Seller Financing
Seller financing is perfect if the seller is supporting of structuring the sale in an unconventional manner. This means that the homeowner will act as the lender where he finances the fix and flip deal. This loan benefits the seller and the flipper because they both make profits from the sale. However, ensure that the financing deal is in writing to protect both you and the seller.
7. Hard Money Loan
If you have struggling credit and cannot arrange your alternative financing methods, this is the loan for you. Hard money loans are the loans you get from individuals and private investors. You can get this loan in two weeks without high qualifications. However, the interest rate for this loan is higher with an added track on fees. Therefore, consider other options before applying for a hard money loan.
8. Business Line of Credit
This loan is best for an experienced flipper who has a history of making regular income and successful deals. A business line of credit will offer you a specific amount of money, but you will only pay for the amount that you use. Hence, this loan is perfect if you are unsure about your financial needs. Apply for this loan at your local or smaller community bank since the interest rates are also low. However, you need an excellent credit score.
Many flippers implement a combination of these methods to finance their projects. Therefore, flip more houses to become more eligible for loans among lenders and investors.