Financing Your House Flips
Part of the Flipping Houses For Dummies Cheat Sheet
Flipping houses is an expensive endeavor. You need money to purchase the property, renovate it, pay the bills for the duration of the project, and sell the property. When financing a flip, work with a qualified mortgage broker or loan officer to consider the following sources of cash:
Your own money: Cash and savings, equity you've built up in your home (your home's value minus what you owe on it), and retirement savings.
Personal loans: Cash from family members or friends who are either willing to help you or wanting to invest in real estate without having to do the work.
Conventional loans: Money you qualify to borrow from a bank or other conventional lending institution based on your income, net worth (the value of what you own minus the value of what you owe), and credit history.
Government loans: If you're buying properties from government-sponsored programs, you may qualify for government loans, even as an investor.
Hard-money loans: High-interest, short-term loans that are often attractive to investors who can't qualify for conventional loans. (One benefit of hard-money loans is that the lender often accepts the investment property as collateral for the loan, so you don't have to place your own home at risk.)
Credit cards: Using credit cards to finance a flip is too risky for recommendation, but some investors have used this strategy. Consider using credit cards only in an emergency to cover the cost of last-minute repairs or renovations or to pay holding costs until you can sell the property.
After you purchase a property, you may be able to finance the repairs and renovations by refinancing to pull the equity out of the property.