Steps to Financing a Fix and Flip Venture

Fix and Flip Venture

Jumping in to the fix and flip housing business can be an exhilarating and rewarding experience. Unfortunately, finances can become an obstacle when it comes down to purchasing a home. However, you can still make your fix and flip dreams come true. Here are a few ways you can finance your first fix and flip venture.

Bank Loans

In many ways, traditional bank financing for a fix and flip venture is similar to any other kind of mortgage loan. Just like with a mortgage loan, you will negotiate the length of your loan term and put down the required down payment and the mortgage will be in your hands. However, if you have ever had a mortgage before, you might be familiar with how frustratingly difficult it can be.

Banks usually require good credit, and in light of the recession and 2008 housing market crash, banks have tightened their requirements on credit in order to obtain a loan. What’s more is those creditors also have stricter rules on who they give credit. In light of the past decade, banks are much more cautious when giving out loans, which can make it very difficult to obtain one, especially if you do not have a proven record of successfully flipping homes before.

Hard Money Loans

Hard money loans are short-term loans that are usually required to be paid off within about a year. Contrary to banks, hard moneylenders lend money based on almost entirely different terms. For example, hard money brokers do not require that you have terrific credit in order to lend. These particular loans are popular among house flippers because they take only a portion of the time to process as opposed to mortgage and other bank loans.

While bank loans typically take approximately three months to process, hard money loans can go through in as little as a few weeks, days, or even within one day. This is another draw for house flippers because it allows them to jump on a deal quickly. After all, owners want to sell their homes quickly and at a good price, so you can beat the competition by being the first to set the deal.

Interest rates on hard money loans can come with high interest rates, and depending on your investment, this can make the hard money loan more expensive than the bank option. There is also the added pressure of paying off your loan quickly within the year, so take caution when you invest in a fix and flip venture so you do not make hasty decisions and miss obvious details.

Home Equity Loan

Chances are that if you already own a home and have owned it for an extended period of time, you have built up home equity. If this is the case, look into how much equity you have gathered in your home. You may want to take out some or all of your home equity so that you can finance your house flip venture. If you are interested, know that a home equity loan is more or less a second mortgage. However, this second mortgage must be repaid over a fixed term and has a fixed interest rate. One risk that goes into this feature has to do with your own home.

Your home essentially becomes collateral for the equity line of credit. This means that you have to be particularly financially responsible with keeping up with payments or else you could foreclose on your own home.

Help from Friends and Family

You will hear this advice time and again if you are ever in financial need. It is certainly not easy to ask friends or family for money. However, there are still times in your life when you will need to rely on them for help. While borrowing from friends, you will definitely ditch your bank, hard moneylender, or home equity line of credit. For example, you can offer them commission after you fix, flip, and sell the home. This can be in the form of an interest rate or a percentage of the profits.

Make sure that you have a written record of your agreement to avoid any conflicts. Remember, mixing finances with family and friends can come with its own strings attached. So, be sure that you are both in a sturdy relationship and that you are responsible with their money.

If you’re interested in home fix and flip venture, consider these financing options to start your real estate venture today.

Article Submitted by Community Writer.

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