Flipping houses isn’t always how it appears on TV. Nonetheless, it can be a an incredible way to bring in a steady stream of investment income. To begin, you’ll need some cash to finance your renovation project.
Fortunately for you, there’s more than one way to get the money you need to flip a house. Here are a few key tips to help you get started.
Option #1: Conventional Bank Financing
The first place you might look for a loan is your local bank. Getting a fix and flip loan from a bank is going to be just like getting any other kind of mortgage loan.
You’ll then choose how long you want the loan term to be, put up the appropriate down payment and the bank hands over the cash.
While that sounds quite seamless, a majority of Los Angeles Hard Money Lenders will tell you that getting a loan from the bank for a fix and flip isn’t always as easy as you might think.
You’ll need good credit to qualify for a loan. And the bank may be hesitant to give you any money if you don’t have a track record of successfully flipping houses.
Option #2: Home Equity Loan or Line of Credit
Our Los Angeles Hard Money Lenders say if you have developed equity in your home, you may think about tapping that to fund your fix and flip. A home equity loan is essentially a second mortgage and you’re repaying the loan over a fixed term (usually with a fixed interest rate).
In addition, a home equity line of credit usually comes with a variable rate, but you can draw against your credit line whenever you need extra money.
The biggest issue with using home equity to pay for a house flipping project is the fact that your house serves as the collateral.
Say you fall behind on the home equity loan or line of credit payments, the bank could choose to foreclose on your house. That’s a bit risky if you’re relying on using your fix and flip profits to pay off your hard money loan.
Option #3: Get A Hard Money Loan From A Los Angeles Hard Money Lender
Most Los Angeles Hard Money Lenders will tell you that hard money lenders make loans for flippers and real estate developers on a bit of different terms than conventional banks.
Our Los Angeles Hard Money Lenders say these loans are generally designed for people who don’t have the best of great credit but need money to complete their renovations.
Furthermore, hard money loans are short-term loans that typically need to be repaid within a year or so.
You might think about getting a hard money loan if you’ve been turned down for conventional financing. But do take into consideration that there are some drawbacks. Hard money loan interest rates most of the time, fall in the double-digit range, which makes them a more expensive choice.
Most Los Angeles Hard Money Lenders will tell you that the shorter payoff period also means you might feel pressured to sell your flipped house quickly to avoid a large payment.
Option#4: Acquire Money From Friends and Family
Los Angeles Hard Money Lenders say money and relationships are often comparable to oil and water. But that doesn’t generally mean you should discount borrowing what you need from a relative or friend.
Our Los Angeles Hard Money Lenders say you won’t have to jump through any credit approval hoops and they’re likely going to offer you a lower interest rate than a bank or a Los Angeles Hard Money Lender.
If you’re going to go this route, it’s important to make sure you get everything in writing. That way, the person who’s lending you money knows that you intend to hold up your end of the bargain.
Our Los Angeles Hard Money Lenders suggest you just keep in mind that if you have a contract, your friend or family member could sue you to recover the money if you don’t pay.
Getting cash out of your own pocket to finance a fix and flip might be a great idea if you don’t want to end up with too much debt. Unfortunately, our Los Angeles Hard Money Lenders say a handful of real estate flippers can’t afford to pay for renovations without accepting some sort of financial assistance.
As you’re trying to figure out how to finance your project, our Los Angeles Hard Money Lenders say it’s essential to compare the short-term and long-term costs of each option.