You may have watched some exciting shows on flipping houses for profit. While it is indeed possible to make $50,000 in a fortnight, generally, you’ll also need to invest around 20% of the property’s purchase price in renovations and the down payment. This may sound intimidating to a first-time flipper, but fortunately, there are several alternatives to paying out of pocket for a property you intend to flip.
Option To Purchase Agreement
With this method, you would typically agree to buy a house after renting it for a fixed period of time. Upon signing the contract, you and the seller agree on the sale price of the property. Ordinarily, your lease payments will be applied to the sale price. This method allows you to start flipping houses while you’re still on a limited budget.
To further cut your costs on flipping houses, we recommend negotiating repairs and maintenance prior to signing the contract. Then review the terms of the contract thoroughly to ensure that you and the seller are on the same page. This is one of the most cost-effective methods when you’re new to flipping properties.
Loans From Hard Money Lenders
Essentially, these are short-term real estate-backed loans from lending companies that are designed to meet the needs of those actively engaged in flipping houses. Banks and other lending companies provide loans with a duration of up to 15-30 years, while hard money lenders offer more flexible terms within a 6 month to 2 year loan period. The catch is that their rates are slightly higher than traditional lenders. They tend to require 11-15%, along with fees based on the amount of the loan.
Another drawback is that the loan amount only covers up to 70% of the sale price, so this option necessitates a second loan to cover the remaining 30% and other expenses. This is when private money would come in handy.
If you manage to find the right private lender who agrees to favourable terms, this will be your best funding source for flipping houses. This is usually a close friend, relative, or acquaintance with an interest in investments. You’ll need to convince them that you’re capable of attaining high returns for them with little risk involved.
The terms tend to differ extensively with private lenders, as each deal for flipping houses comes with a different set of risks and returns. When you’re just starting out, you can expect to pay an interest rate ranging from 12-15%. Whereas, veteran flippers can negotiate for rates as low as 8%. This is well worth the extra cost, as you’ll receive the funding you need as quickly as possible – in a couple of days, or even just a few hours. With banks, it could take as long as 30-45 days to approve your loan application. And the property may no longer be available by then.
Flipping Houses With a Partner
With this method, you would enter into a partnership agreement with someone who is willing to invest in flipping houses with you. Splitting the profits evenly is a common practice in this arrangement, with you handling most of the renovations. This may seem unfair to some, but when you’re just starting out, it’s an excellent way to break into this niche.