Tips for Getting Funding for Fix and Flip Property
The opportunity to repurpose a home to reflect its gorgeous potential through the fix and flip can be incredibly appealing. However, the initial barrier of significant upfront cost can be restrictive. If you consider these options for funding your property project, you are sure to find a financial option that’s right for you.
Loans Through Family or Friends
Family and friends who have personal capital that may want to get involved in real estate can be a great resource. However, it is important to note that any financial relationship can complicate a personal one, so consider who you are investing in and determine terms and boundaries before diving in.
A financing partner can complement your plans for managing the renovation who could be a personal or professional connection. As with any partnership, you should document your agreement to avoid any issues or concerns down the road.
Home equity loans should be considered for homeowners who have a sizable portion of equity, at least 20% or more in your home. As with any loan, it is important to consider the terms wisely before moving forward.
Loans that are taken out from your retirement fund should only be considered for young borrowers who are not close to retirement age. These can be considered a bit higher risk but can be good options in certain cases.
Personal loans are another option for those with a high credit score who do not need significant financing. This is not a good option for those who need a significant financial contribution for their fix and flip project.
Seller financing is when the seller of the property finances all of the renovations and serves as the lender in these cases. While there is not an immediate payout, this unconventional circumstance can offer benefits to the fix and flipper and the seller.
Hard Money Loan
Hard money loans are typically for those who cannot find a more traditional means of financing their real estate project. Often funded through private investors, these oftentimes come with a significantly higher interest rate.
Line of Credit Through Business
This type of financing can be a viable option for a well-seasoned fix and flipper, as business lines of credit can require very stringent requirements, including a high credit score, history of revenue and capital. All of these are often unlikely for someone who is completing a project for the first time.
Regardless of how you approach the fix and flip property, there are significant payouts, but they do require significant cost upfront. While there are options for almost everyone, each option should be weighed carefully to ensure that this is the right fit.