Have you thought about earning money by flipping houses? People who do these kinds of real estate transactions purchase houses at a low price because the homes need work, and then, they fix them up and sell them for a nice profit. But how do you get fix and flip lending to purchase the houses in the first place?
Problems With Traditional Mortgages
There are a few problems with using a traditional mortgage to purchase a home for flipping purposes. The value of the property in its run-down form may not be enough to get the loan approved. Also, banks like to see a good income to approve a loan, but if you are a real estate investor, your income may be hard to prove. Traditional loans also take a long time to close, and the property may not be available for that long. Finally, banks do not usually like to lend money on homes that are in poor repair.
Some Ways That Mortgages Can Work
There are still some conditions in which a traditional mortgage can work for fix and flip lending. You may have some assets that you can pledge as collateral, or you may have another property that you can use to take out a home equity loan. If you are an experienced real estate investor, your past successes may convince the bank to approve your loan. You might also be able to live in the house as you are fixing it up, allowing you to get financing for an owner-occupied property.
Consider Private Loans
If you are not able to get traditional financing for your fix and flip property, consider taking out a private loan instead. People you know that might be willing to lend you money could include relatives, business associates or friends looking for investments. Or you can use hard money lenders, which are non-bank companies that specialize in investment loans for real estate or other purposes.
Hard money lenders will not look at your creditworthiness as much as they will analyze the potential for the property. They want to know that it can be a successful flip and that if it doesn’t work out for some reason, they will be able to take over the property and not lose money on the deal. Private lenders usually charge higher interest rates than a bank would, but if you can’t get a bank loan, a private lender will allow you to still do the fix and flip.
Of the various ways you can finance your flipping project, private loans may be the best choice for you. Consider the pros and cons carefully, and if the numbers make sense, go for it.