Flipping houses is a type of real estate investment that involves buying properties that often need work at a discount, fixing them up, and reselling them for a profit. Though it has the potential to be rewarding, house flipping requires substantial financial investment. You can get money for a house flipping project using different methods. These include:
1. Private Lenders
In most cases, private money lenders are not part of a large financial institution. Nor are they legally authorized to provide loans. Any person other than a bank or credit union can be a private lender. When a conventional financial institution denies a loan application, most borrowers turn to small private lenders.
If you’re planning to flip a house, a private lender will loan you the money you need to purchase the property and cover associated expenses. Financing your home flipping with the help of a private lender requires a promissory note outlining the terms both parties have agreed on, a deed of trust linking the private investor’s funding to the property, and hazard insurance to safeguard the investment.
2. Hard Money Loans
Private lenders who lend money using their funds or a pool of investor funds are known as “hard money lenders.” They do this to make a profit from the loan’s interest payments. Besides the property’s location and the cost of necessary repairs, the loan is determined by the property’s after-repair value (ARV). A typical loan for purchasing, fixing, and selling real estate is 65% of the after-repair value.
This type of loan has a far less rigorous approval process than conventional loans. Hard money loans typically require a down payment of some sort. You’ll need an alternate source if you don’t have the funds for a downpayment, which could be from friends, family, other investors, or even a company credit card. According to HardMoneyHome, 50 hard money lenders are providing loans in Atlanta, Georgia.
3. Real Estate Crowdfunding Sites
Crowdfunding websites specializing in real estate are another innovative method of acquiring funding. Crowdfunding has become a common strategy for financing ventures of many kinds, including house flipping.
According to Massolution’s estimations, $2.5 billion was crowdfunded for real estate in the United States in 2016. It was also the fastest-growing crowdfunding category that year. Meanwhile, Forbes had predicted that by 2021, worldwide crowdfunding for real estate would have reached $9 billion.
Purchasing, restoring, and reselling houses can be rewarding, but it requires a substantial financial investment. Familiarizing yourself with the different financing options for a house flipping project will make the process much easier. For help with such financing, give us a call today.