We have all seen those shows where brothers or a married couple become real estate gurus by flipping houses. Some of you know the handle of every real estate investor on Instagram. They all make it seems easy, buying a ran down home, fixing it up and having a few arguments along the way. Then after it all, they make a wonderful profit. But where do you begin?
You must begin with having some cash to burn. Let's just dive in and find the money.
Yes, you can flip using a mortgage. There are several different mortgages that will work as an financing tool. You can go conventional and FHA (Federal Housing Administration). Both have different requirements. In fact, getting a conventional mortgage doesn't have any property purchasing limitations. Basically, you can use these mortgage products to buy your investment tool with a minimum of 3% down investment.
Check this out, there are mortgages such as the VA Loan which is a loan for Veterans and USDA Loan which is a sponsored by United States Dept. of Agriculture where both offer no money down options. Both have eligibility requirements, so check with your lender.
A hard money loan is a type of short-term financing that is typically issued by a private investor or company. Hard money loans are perfect for home flippers since they require little money down and often have flexible pay back terms. In addition to that, a hard money loan is based off the value of the home once it’s is fixed up and not the purchase price. This means you could potentially finance the cost of the home plus some of the repairs. However, hard money loans are pretty expensive and may come with high interest loans. Each lender will have their own set of rules.
We suggest if you go this route, to be sure about your time table, budget and profit goals.
Almost forgot to add this small nugget. Some hard money lenders will reduce the cost of their lending if you work them into the deal. Or if you promise them a piece of the sale profits.
A private money loan is money from a friend, family member, or colleague who provides a loan to help fund your real estate investment. Private money loans are primarily based on personal relationships and trust. Private loans don’t come with any qualifications on your part. If you are lucky enough to have someone who can become a private money lender, this is the best way.
Portfolio lenders are local banks that loan their own money. Because of this, they don’t have to meet Fannie Mae’s guidelines when lending. This is good news for you because you won’t have to follow lending requirements imposed by national banks. Since portfolio lenders would go broke if a lot of people defaulted on their loans, most charge above-average interest rates or limit their offerings to home buyers with the best credit. Additionally, keep in mind that a portfolio lender will want you to have all your accounts and money in their bank. The better relationship you build with your portfolio lender, the better loans you’ll receive.
If you have equity in your primary residence or other real estate you can pull there. You can even layer that money to other resources.
The key to finding money for your flip is knowing your plan. You have to know your budget, the market and rehab cost. Doing that will help you better determine the correct funding options.