Acquiring cash for your fix and flip might seem like a daunting task. As a new house flipper, you might be asking the question, “How can I finance my fix and flip project?”. In this article, we will examine the best methods for financing house flipping renovations so you can choose which option is best suited for your needs.
Hard Money Loans
Hard money loans are referred to as “private loans” as they are acquired through private companies as opposed to conventional lending avenues like banks. Typically, borrowers use a hard money loan for house flipping as they offer quick capital, sometimes in as little as five days. Hard money loans is a great method for financing house flipping as the loan represents the value of the property itself versus a set amount of cash like in a conventional loan.
Private Money Lender
If you’re looking for a more short-term method for financing your house flipping renovations, finding a private money lender may be right for you. Private money lenders often have more flexibility than a conventional mortgage loan which allows you close the deal faster. Private lenders are often looking to build their portfolio by lending money from their savings and earning profits on the interest. Typically, private lenders wish to work with qualified, experienced house flippers, so be prepared to bring a portfolio and answer questions. Private lenders can also be friends, family, and other connections you have.
Conventional Rehab Loan
When using a conventional mortgage loan to flip a house, you are able to pay for the house but are left with the question of “How will I finance the rehab?”. A conventional rehab loan offers you the benefits of both paying for the home and still having enough capital to finance the rehab after. However, these loans require you to have good credit and make a down payment. These loans often have longer terms than hard money loans, which can be a downside for borrowers. Rehab loans are good options for home buyers wanting to buy a house that needs a lot of renovation and want to move in after.
Home Equity Line of Credit
For homeowners looking to flip their houses, a home equity line of credit is an option to consider. Also known as HELOC, this allows you to “tap in” to your home’s equity to get a line of credit that can be used towards your flip. Instead of receiving a lump sum amount of cash like in a hard money loan, you are borrowing on a line of credit and paying back what you borrow based on a fixed interest rate. This option to finance your flip is a good option for those who already own their home and are looking to flip another one.
Crowdfunding sites are websites that help investors get exposed to real estate by allocating funds to house flippers and other real estate ventures. Although some crowdfunding sites gear towards home renovations and debt consolidation, there are many sites that are geared towards larger real estate projects. Crowdfunding websites can be a great resource for flippers who are looking for fast financing, but they do not offer the same flexibility as private/hard money lenders.
Use Your Own Cash
If you have a considerable amount of cash saved up, then using your own cash is certainly an option. Use resources like your savings account, an IRA, or other assets as a method for financing your house flip. Using your own cash is one of the best options for flippers who value low risk and no interest rates.
The easiest way to save on your next fix & flip investment is to obtain financing from a trusted 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.