If you are going to purchase an investment properly to fix and flip, you are going to need to secure funding to do so. Not only do you need to buy the home, but you need money for renovation costs. Here are a few ways you can get the money you need.
Hard Money Loans
A hard money loan is a specialized loan just for flipping houses. It is a short term loan that is asset based, so the lender is concerned more about the property you are purchasing rather than a credit score. If it is a good investment then you are likely to get the investment property loan. This means that you can get a hard money loan even if you have bad credit or are above your debt-to-income ratio. However, you will pay a higher interest rate than a conventional loan, which will have to come from a portion of your profits. You may also need to put a significant portion of money down in order to get the loan, so the lender knows that you have some risk in the investment as well.
Private Money Loans
The difference between private and hard money loans is that private loans come from an individual. They are essentially willing to lend you capital from their personal savings in order to fund the flip. The most difficult part of using a private money loan is finding an individual willing to invest in you, but you can end up getting a more favorable interest rate as a result.
The unique part about using an equity partner is that they are responsible for providing all the money in the deal. However, you often give up much more of the profit, which can typically be 50%. This type of funding does not require any money on your part, but will see the least amount of profit. This can be idea for someone starting out with home flipping since it involves the least amount of risk.
Home Equity Loans
Were you aware that you can actually take out a home equity loan on your own house to fund you flip? You do not need to have your existing mortgage paid off either, since you can use a portion of the equity specifically for your flip. This can be the most affordable way to borrow money as well, since the interest rate is going to be much cheaper than other methods.