Getting a Loan to Flip a House
There is an unwritten rule in real estate that stipulates you must not run out of money. For this not to occur, one must do everything in one’s power to secure other people’s money. There are a few ways to hustle for money, but the ideal way is through a loan. Once you secure a loan, you can invest in flipping homes where you can profit handsomely.
The process of flipping houses is straight forward. This objective is to sell it for more money than invested.
- Buy a distressed property
- Clear the house of Its title and taxes
- Renovate the property
- Sell the property as a move-in ready home
The property must be purchased at a low enough price to enable you to invest enough money to renovate the house, enabling you to sell the home at a premium due to its improvements.
You will want to reduce your financial and operational expenses by securing low-interest rate on the loan and complete the process of flipping a house quickly. Having a work crew ready to start working on the house the very day that you buy it, ensures you will not fall behind schedule.
The Options to consider when financing flipped houses include either choosing investors who will finance the project or seeking out bank financing. Your decision is based on two concepts:
- How much money the house will cost
- The risk involved
Working with Investors is favorable as it is a direct option to secure money, and you will not need to pay it back all at once. Investors expect a return on their investment, but they are not entitled to monthly interest checks. Instead, the Investors’ return is variable, and it is not expected to pay the investors unless the project makes a profit. The money is considered a “lower risk”, up-front, but a “higher cost”, long-term.
Financing the project through banks and mortgage companies is another option of securing money. In the current market, it is ideal to finance flipped houses through variable rate mortgages, as the rates are extremely low. It is important to make sure there are no points associated with these loans as they are non-refundable interest costs. As these loans have a fixed rate, at least for a few years, the interest risk is reduced greatly.
Straight bank loans with short terms such as ninety days require that the money is paid back at the end of the term. These loans demand that you have excellent credit. Be aware, you must buy, legitimize the title, renovate the physical property, sell it, and close the deal in the chosen time-frame. The period from the sale of the house to the closing can be just sixty days. A positive note is banks willingly roll the loans over when you have a bona fide buyer under contract. Unfortunately, the interest rates can be eight percent or more.
Before you jump into the business of flipping houses, assess your cost of money and the risk associated with your debt. It may start off as a lucrative, business adventure, but the reality is that you need an endless supply of money to sustain your investments. In most cases, you will most likely be forced to find additional cash through loans to make a profit in flipping houses.