Flipping houses has become increasingly popular over the years. Whereas sprucing up a house in need of renovations and selling it for a profit seemed to only be for wealthy investors at first, it caught mainstream attention. Now, with many options for funding flips, it has been embraced by individuals across the country. Whether it’s turning the channel to HGTV or seeing flipping on social media, the activity is everywhere.
With a high return on investment involved, it’s no wonder that many want to try their luck flipping a house. According to ATTOM Data Solutions, 5.9% of all home sales in 2020 consisted of flipped homes. In fact, on average, flipping houses generated a gross profit of $66,300 across the United States – the highest level at the time since 2005.
Additionally, while many think they need cash or savings to start flipping houses, this is not the case. Funding flips is possible in many other ways. 42.7% of all homes flipped in the fourth quarter of 2020 were bought by investors with financing.
This article will delve into funding flips and the various options you can take. Whether via hard money loans or through home equity loans, there are many ways to get your project off the ground. Keep on reading to discover how funding flips work and how to go about doing so.
How to Get Funding to Flip Houses
There’s no denying that flipping houses can get expensive. In addition to buying the property, you have to pay for renovations and repairs. You also have to cover marketing and sales costs when it’s time to sell. Many don’t have savings to cover all the expenses involved. However, there’s no reason to worry. Funding flips doesn’t have to be done entirely on your own.
While it’s true that you can’t get a mortgage lender to give you funding for flips, there are other avenues you can count on. The following are some of the many options available to you.
1. Home Equity Loan
If you’ve built up equity in your home, you can use it for funding flips. Home equity refers to the difference between how much you owe on your mortgage and how much your home could sell for. It’s possible to tap into this and take out a loan against your home. However, this can turn out to be risky since defaulting means that your home can get foreclosed on. That being said, home equity loans are also beneficial for funding flips. Payments and interest rates are fixed, so you have consistent costs.
2. Home Equity Line of Credit
If you don’t want to take out a home equity loan, another option for funding flips is a home equity line of credit. This refers to a credit limit you can take advantage of. Since the borrowing amount varies, you only have to make payments on the specific amount. However, it’s important to note that the interest rate is usually variable, and you can see fluctuating payments depending on economic trends and the overall economic landscape.
3. Personal Loans From Friends and Family
One of the biggest advantages of using personal loans for funding flips is avoiding high-interest rates and related fees. Additionally, you can skip complex paperwork and come to a simpler agreement. Having friends and family invest in a flipping project has many advantages. However, it’s important to be aware that borrowing money from friends and family can lead to interpersonal problems. Therefore, it’s essential to be cautious when opting for this type of loan. If you decide to go forward with it, treat it professionally and consider it a bank loan.
4. Hard Money Loans
Hard money loans are another option for funding flips. This type of loan is often used for real estate investment. Instead of relying on a credit score or going through extensive background checks, you can secure a loan easily. However, this comes at a cost. You may not get optimal loan terms and may have to pay high interest rates. Additionally, the property you’re flipping or another property will likely be used as collateral.
5. Unsecured Personal Loans
If you have a good credit history and a high income, you can always take out an unsecured personal loan and use it for funding flips. Since the loan is dependent on your financial reliability and doesn’t involve collateral, you can use it for anything you want, including flipping a house. Additionally, you can do this through both traditional lenders and online lenders. Make sure to shop around to get the most favorable terms. Turning to online lenders is especially convenient since you can get approved within days or even within 24 hours, depending on the lender.
6. Seller Financing
Seller financing may sound complicated at first, but it’s a simple concept. Instead of getting a loan from a bank or another institution, you can agree with the property’s seller. Seller financing makes funding flips helpful if you don’t have other options and can make the closing process simpler. However, it’s not always viable, especially if you have a poor credit score. Additionally, it may involve higher interest rates than traditional loans.
From Funding Flips to Finding an Investment Property
There are many different avenues to funding flips. Being aware of them and securing loans gives you the best chance to succeed flipping a house. Once you’ve tackled financing, it’s time to find the ideal investment property.
The experienced real estate agents at Robert DeFalco Realty can help you find the perfect property. We’re well-versed in both residential and commercial real estate investment properties. Visit our offices, or call us at 718-987-9700 for more information. You can also reach out to us here, and we’ll get back to you right away.