The Best Options to Fund Your Next Fix and Flip
Projects known as a fix and flip contains the process in which properties are purchased, repaired or renovated and then resold for profit. These projects can be costly as well as time consuming. Fortunately there are financing options available to those who choose this sort of investment opportunity.
The costs associated with flipping a home not only include the costs of renovations and repairs, but listing fees, contractor fees, and even holding fees, among others. This can make choosing the right financing option an important step. There are four great options for those looking to fix and flip a property.
Financing Options Available
Home equity line of credit
Those with an owner-occupied home with a good amount of equity in it might want to consider a home equity line of credit. Not technically a loan, interest won’t start to accrue until the draw is made. Once approved, the flipper can take their time finding and planning the perfect project to add to the home’s value. This is also a great low interest option with not a ton of restrictions on when you have to pay back the line.
Cash Out Refinance
A cash out refinance is the best option for a Fix and Flip that already has a large portion of equity in their existing investment property. When you pull cash out of your property you can use the available funds for rehab and construction. Make sure that the lender you choose is ok with you using the funds to renovate your property. Sometimes banks like to control the disbursement of funds and can be a complete headache to deal with when trying to flip your property quickly.
Hard or Private Money Loans
These loans are those given by investors for the flipper’s use. These loans are mainly one to two year terms with higher interest and origination fee’s. Hard money loans are good for clients with bad credit. However, sometimes they do require you to put more money down then usual to offset this risk. Another great feature to the hard money loan is that you don’t need to provide tax returns. The process is much simpler and has the ability to get closed within two weeks.
Friends and Family
Although not discussed enough, friends and family can be a great option to fund your next fix and flip. This is my least favorite out of all the options. However, this can provide you with short term capital without incurring a ton of fee’s. I wouldn’t suggest this option to first time flippers. Experienced professionals who know their market can take advantage of this opportunity and know comfortably you can pay back your investor. You can structure the deal where your family gets part of the profits when the flip is done and sold.
Credit Cards
Applying for, and securing a high balance credit card is a great option for fix and flip financing. Again, we suggest you to have multiple flips under your belt before pursuing this option. Credit cards can provide you with enough capital to fund your flip and then pay back when complete. The high utilization could impact your credit so make sure this isn’t the only trade line you have. Most credit cards provide you with 15 months interest free. So being able to take advantage of 0% interest during your flip is advantageous. However, you could hit a decline in the market and be stuck with your property for longer than expected. So, always have a B,C, and D backup plan when using this option.
Permanent Bank Loans
A permanent bank loan usually comes with a 15 to 30 year term and is authorized by a lender approved by Fannie Mae. These types of loans are usually used to purchase long term investment properties or owner-occupied residences. In most cases this type of loan is not suitable for a quick flip and sell, however, those looking to purchase and flip a property they intend to become their primary residence may qualify.
In Conclusion
These four options are the right choice for you when it comes to financing your fix and flip. Look at your project and financing needs when making your decision. If you have any questions about financing your next fix and flip speak to a pro by clicking here.
