Home flipping is one of the best ways for investors to make a solid return through real estate. For beginner investors, flipping can also be a great way to familiarize yourself with all the different steps of the real estate process while making enough money to fund your next investment. Although flipping can provide investors with great returns, it does require a significant amount of capital since there’s both the cost of acquiring a property and renovating it to worry about. Most people don’t have that kind of cash readily available, so they instead turn to financing for their investments. If you’ve been considering acquiring a fixer upper for your next real estate project but are struggling to find the necessary funding, here are some ways you can look to finance your investment.
Conventional Bank Financing
Starting with the basics, you can always seek financing from a traditional provider like a bank or credit union. These loans generally have lower interest rates, but the problem is that most traditional financial institutions won’t issue loans for the purpose of renovating properties. A vast majority of the real estate loans they issue are intended for owner-occupied homes with a loan term of 15 or 30 years and no funds provided to cover renovations. Besides this, most banks won’t be willing to lend on a property in poor shape as they’ll deem it too risky for their purposes. Still, if you find a bank or credit union that is willing to work with you despite these obstacles, it can serve as a viable solution for financing the acquisition of a property.
Refinancing allows you to pull equity out of a property you already own and use those funds however you choose. It can be a great way to finance a home flipping project, but it does require you to own property already and have significant equity built into it. A Home Equity Line of Credit (HELOC) is a similar form of financing provided by many of the same lenders who offer Refinance loans. A HELOC allows homeowners to borrow money against the equity they’ve built in a property and use it in the form a line of credit. Just like refinancing, the funds can be used virtually however you’d like, but both of these loans will be limited by the amount of equity you have in a given property.
Hard Money Loans
The next option you should consider for financing your home flipping project is a Hard Money Loan. Hard money loans specifically refer to loans backed by owned property (typically the home being loaned on) and issued by private lending institutions that operate in the real estate space. There are many advantages to using these types of loans for real estate investing, but for flipping they have the specific benefit of providing funds to cover renovations on top of acquisition costs. Most lenders in the space will offer short-term loans specifically designed for flipping with terms ranging from 6-24 months as opposed to 15 or 30 years. Hard money loans also have a less stringent application process which helps deliver funds much faster than traditional loans can.
Another way you can look to finance your investment is through Private Lenders. These are simply individuals or organizations that are willing to give you a personal loan. You may have friends, family, or business connections that are willing to help fund your home flip. The benefit of receiving one of these loans is they will often have lower interest rates, and no hoops to jump through when qualifying. The lender may be more willing to negotiate repayment terms with you as well.
Joint Venture Partnerships
The final method we want to discuss for funding your real estate deal is a Joint Venture or Partnership. If you can find a business partner that has the same goals as you, then you can share the burden of the cost needed to complete your fix and flip project. Of course, this strategy also means you’ll be sharing the profits with your partner, but it can be a good way for a beginner investor to break into the world of real estate since they may not have enough capital of their own when starting out.
The easiest way to save on your next investment is to obtain financing from a real estate lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you are an investor looking to finance a home flip, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.