The Best Loan Options for House Flippers
Whether you’ve used your house flipping skills to become a renovation mogul, or you’re just about to get started on your first property, one thing never changes: you need money! Some people have the funds on hand to self-finance or can work out a family or friend loan through their personal network. Some flippers like to bring a partner or partners in. Others will use their home equity to receive a line of credit, or cash in a 401(K) account. While each of these methods have their advantages, we’ll look at four more universal approaches to receiving fix and flip financing.
Unsecured personal loans give you cash to use for whatever you like. To qualify, you’ll need at least a 650 credit score. Generally, the terms are monthly payments between 3 and 7 years with low interest rates around 5%.
The major drawback of a personal loan for a project of this size is that the amount available usually caps at $50,000. But, if used in combination with other financing tools, a personal loan can fit nicely into a fix and flip plan.
In owner financing, the person you are buying your fix and flip property from also works as your lender. First off, it is always wise to have a lawyer draft this type of agreement. You will need to agree upon a down payment, interest rate, and term. Typically, the renovator will pay only the down payment and interest payments until they can sell the property.
Bank Commercial Line of Credit
If you’ve flipped several properties, your successful track record can help you get a commercial line of credit from a bank. A line of credit is nice in that you will be approved up to a certain amount, but you can just use and pay back you need. Most banks offer this option, you will just need to have an excellent credit score of 700 or higher, with a good amount of liquid cash on hand.
Hard Money Loans
Hard money loans come from private investors or individuals, rather than banks. They’re designed for less qualified buyers, so, the approval process is easier, but the interest rates are higher, usually around 10 to 20%. The down payment is around 10% and the term is typically a year. This type of financing benefits lenders if they see big potential in the property. These funds are usually released in tiers as each stage of the fix and flip is completed.