Fix-and-flip is seen as the best real estate investment strategy when making money fast is a priority. Moreover, finding the perfect financing for flipping houses may save you a lot of worries and money. What are the best financing options? What steps do you need to take when trying to find them? If till now you could not find the answer, keep on reading, and we will reveal to you the best financing options for flipping houses.
#1 Best Real Estate Investment Strategy: Fix-and-Flip
When talking about a short-term real estate investment strategy, fix-and-flip is seen as the best real estate investment strategy if real estate investors desire to start making money fast. However, what are the steps real estate investors should take when dealing with a fix-and-flip investment property?
Well, the first step is buying the property. In the best case scenario, real estate investors purchase a property at a price below the fiar market value. That property, in most cases, needs renovation. When the renovation is completed, real estate investors, usually, sell the property at a higher price. This is in order to cover all the costs such as: renovation costs, appraisal costs, taxes, etc. and receive profit. Such a short-term real estate investment strategy may sound very easy to deal with; however, it requires experience and knowledge in the field in order to complete it successfully. The secret to be successful and to start making money fast is finding the best financing for investment properties.
Before rushing in and telling you what the best financing for flipping houses is, we will mention one type of financing which you should avoid.
#2 Financing for Flipping Houses: Mortgage Loans
This type of financing for investment properties has the benefit that bank loans are relatively inexpensive. Interest rates compared to other types of loans are among the lowest ones. Therefore, the return on investment is higher. However, why should you avoid using this type of financing for flipping houses?
- Reason #1:
One of the main reasons why you should not use mortgage loans from banks is because it takes a lot of time to close the loan. Real estate investors will be required to fill in extensive application forms. Therefore, only the process itself will take between 45 and 90 days.
- Reason #2:
Banks prefer to provide a loan for a property that is in a relatively good condition. However, if the property has major problems like health or safety dangers, you can forget about a mortgage loan.
Therefore, if your plan is making money fast, skip this method of investment properties financing. Below you can find two other methods for financing investment properties which are suitable for financing for flipping houses.
#3 Financing for Flipping Houses: Private Money Lenders
Private money lenders are typically your family, friends, or other private investors who would help you with investment properties financing. Financing for flipping houses with a private lender’s help is very beneficial for your short-term real estate investment strategy as you will not be checked for credit history, for instance. Thus, you will save time from the loan application. Instead, you will be able to focus on your real estate investment strategies. Additionally, you would probably avoid the high interest rates as well. Therefore, you will have higher return on investment. Another benefit when you use money from private lenders for financing flipping houses is that you are able to negotiate the terms of the loan. The results of negotiation truly depend on your skills of communication and bargaining. Nevertheless, if you are planning to go down this path, you should create a contract so that the person whose money you are using stays calm. Such a contract assures the person that in a certain time period he/she will get his/her money back. However, if something goes wrong, the person who supported you financially may sue you in order to recover his/her financial assets.
#4 Financing for Flipping Houses: Hard Money Lenders
Applying for a hard money loan is one of the best ways of financing for flipping houses. Hard money lenders are usually private investors or small companies that are willing to help you out by lending you a certain amount of money. Additionally, a hard money loan is the best decision when banks refuse financing for investment properties. Hard money loans have numerous advantages. With this type of loan, it does not matter which real estate investment strategies you follow, what your credit history is, etc. This is because hard money lenders do not pay attention to such aspects as banks which offer mortgages. Instead, hard money lenders focus more on the value of the real estate deal, how much profit it will generate, what its return on investment will be, etc. Do not forget, these are professionals who lend money only to those who invest in real estate. Moreover, it is important to know that you typically get the loan faster than a mortgage from the bank. So, you would be able to receive the money in a few days rather than a few months.
Once you are in possession of a loan, you will see that the structure of the loan is not the same as when you take a mortgage. It is important for you to understand that the interest rate is much higher than the one for traditional lending. This might be challenging when you need to pay back the loan for investment properties financing as it should be paid at once at the end of the term. Moreover, you need to calculate everything carefully. Otherwise, you may put in risk all future and present real estate investment strategies if your fix-and-flip does not bring you the expected profit. Consequently, you need to understand that hard money loans save you money in the beginning. However, they usually get expensive at the end.
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