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Fixing and flipping real estate is no longer a fringe strategy that only a select amount of aspiring investors understand – it has become a mainstay in markets all over the country. Hard data shows that flippers are making a serious impact in buying, renovating, and selling homes. And they’re making quite a bit of money in the process. Despite this now well-known strategy that can produce some serious profit, many still find it difficult to break into what seems like a high barrier industry.
How can you finance your first flip without the appropriate amount of capital? What do people with little to no money do to get the started in real estate? What happens when the bank says no to flipping financing and there’s no proof of funds available to move the process forward?
These are some of the most common questions when it comes down to locking down potentially lucrative deals and opportunities. The common consensus says that the lack of funding is what prevents many from giving it a go. Fortunately, these questions and concerns do have solutions. Here’s more good news: money chases the deal, not the other way around. Once you find a great deal with great profit margins, then finding funding sources becomes a whole lot easier. Let’s take a look at a few of the fix and flip funding options available to you as a real estate investor. But first, let’s look at a few things that need to be understood before making the leap and approaching funding sources.
A Few Things To Remember
Any fix and flip deal you pursuit will have a 4 tiered process with each step requiring capital to move forward. First, there’s the down payment; second are the holding costs; third is cost of renovation; and fourth are the closing costs assuming you sell through a realtor.
Unless you are a seasoned investor with many properties under your belt, virtually all banks will refuse to fund your deals.
For first time flippers especially, it’s crucial to create business plans for each flipping venture, commit to accurate deal analysis, and foster your real estate network. Now that’s out of the way, let’s look at the funding options that you can begin to pursuit right away.
Option #1: Joint Venturing
If you’re just starting out and you’ve located a great opportunity, partnering in on a deal with a local investor is a great option. What you lack in resources can be made up by a thorough knowledge of the target market. Your investor brings the capital, and you provide deal location expertise. They supply the financing while you plan and manage the renovation process. The shared responsibility will cut down on the frustration and deal stopping aspects of the fix and flip.
Option #2: Home Equity Loan
This is a bit more advanced and will work best for investors who can take out at least 20% of the equity from their own property. Opening a home equity line of credit allows you to tap into the value of your private residence while borrowing the exact amount you need and only having to worry about making the interest payments. Borrowers should ensure that their credit is in good standing, and that they can maintain both their mortgage payments and the interest associated with the HELOC as well. Many banks will let investors borrow up to a whopping 85% of their homes retail value, minus the remaining mortgage balance.
Option #3: Hard Money Loans
This is perhaps the most common yet unconventional method for investors when it comes to funding a fix and flip deal. This method is especially useful for those with less than perfect credit and are unable to pursue other avenues of financing. These loans originate from private individuals who understand the nature of fix and flip deals and have the means to provide investors with the cold hard cash needed for the four steps outlined above. Beware, however, that most of these types of lenders usually charge higher fees and higher interest than most other avenues of funding in exchange for lower qualification barriers.
Things To Keep In Mind
Remember, where there’s a will, there’s almost certainly a way. Exhaust your options if you’re serious about getting started in real estate investing. Try combining these methods together if you have to. Keep growing your personal network as well. This will make funding easier to find.[flexy_breadcrumb]