When deciding to undertake a fix and flip house project, one of the first things to consider is how you will finance your new property. Due to the nature of the project, not every bank will be quick to jump onboard with your vision. Knowing the ropes when finding financing will be crucial to your success in the house flipping market.
Hard Money Loan
Hard money loans otherwise known as rehab loans, can be a great option for a fix and flip project as they have less stringent standards for approval. Approval, as well as funding can occur within 15 business days. Additionally, these loans are easier to obtain as the focus is more on the return potential as opposed to the borrower’s personal history. In the same vein, these loans will be approved based upon potential, not current value of the property; thus, allowing for a dilapidated flip home to be financed. Furthermore, these loans are a great choice as they are a short-term loan which is ideal for a purchase, flip, and resale occurring within one year.
Cash Out Refinance
Cash out refinance can be a viable option for those who have successfully completed at least one prior house flip. The basis behind this idea is that the investor would refinance a completed flip with its additional equity to pay off the initial loan and extract the extra cash to purchase a new flip. While this is not an option for first time flippers, for the experienced investor this can be an easier way to finance additional properties.
Equity Line of Credit
This method of financing is very similar to using a credit card. The equity line of credit is just that a credit line given on the current value of the flipper’s personal home. Interest is only charged on the amount borrowed and goes away after the amount is repaid, much like a credit card. Thus, there are no stipulations on what can be purchased with the credit line since it is borrowed against the investors personal home instead of the investment property. This can be an excellent way to finance a flip providing you are diligent to quickly complete the project and resell the investment.
Bridge loans are temporary loans that can be used when an investor desires to buy a new property before the resale of another house flip. It allows a flipper to pick up other financially responsible investments as they arrive on the market without having to try and move another property at in inconvenient time. These loans are not for everyone as they can not be used for rehab projects like hard loans.