A fix and flip are when a person buys a property that needs repairs, renovates it, and then resells it. The trick is though, is that you’ve got to be able to fund the rehab (repair) of the property before you can resell it. That said, you can rest easy because below are 3 ways in which you can fund your fix and flip.
Family and Friend Loans
One of the most important parts of house flipping is having a reliable, well put together network. Although you’ll need to create your own dependable network eventually, your friends and family are a great place to start. Family and friends are easily accessible and they’re not very likely to charge you high-interest rates. There are a few things that you should know before you decide on this kind of loan, however:
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Always get the exact terms of the loan in writing
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Always specify the interest rate and the duration of repayment
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Be sure to always follow the IRS and security laws when using family and friend loans
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The borrower pays the entire sum (plus interest) once the repairs are done
Contractor Financing
50% of people use some form of financing to pay for home improvement projects over $5000. This makes sense. After all, house flipping can get costly. Luckily, there’s the option of contractor financing, which is when a contractor provides the funding to pay for renovations. Hard money loans are a type of contractor financing and are a short-term loan provided to the borrower for the duration of 1 to 3 and pay for the property and the renovations. Hard money loans are also:
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Best suited for both novice flippers or experienced flippers that have bad credit
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Are pretty easy to be approved for
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They tend to be granted in about 15 days
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The interest rates can be high—as much as 12%
Finance With a Partner
Partnership financing usually happens when two people come together and split the responsibilities involved with house flipping. The way it usually works is that one partner finds the flipping opportunity and handles renovations while the other pays for the rehab. The way the money made is split depends on their negotiations, for example, they may decide that the financier receives 50% of the money made from the sale. Due to the nature of this kind of loan, it is best that both partners come together to make a written agreement as to the specifics of the partnership.
The great thing about financing your fix and flip is that you aren’t limited to only one option. Some people use a combination of these sources to ensure that they get the maximum return on the sold property. While house flipping can be as risky as you’ve probably heard, there are many who decide that the risk of borrowing the money is worth it. Maybe you'll find it worth your while too.
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