House Flipping: Where To Find Investment Property Financing
House flipping can be a fun and profitable venture. Where do you get the financing to fund your investment property deals?
There are mountains of house flipping deals to be done out there. Demand from buyers is strong too. Yet, in order to take advantage of these opportunities real estate investors need financial leverage. Even those that do have the money to pay all cash will find superior benefits in using leverage and other people’s money. Plus, there are a variety of cash demands from acquisition, to repairs, holding costs, and remarketing. Most will also want to be working on multiple deals simultaneously. So, what avenues are there for securing investment property financing in the current market?
Banks and Traditional Mortgage Lenders
Main street banks and mortgage lenders used to be the first go to for mortgages and small business loans. Things have changed a lot. They are no longer nearly as competitive or helpful as they used to be. Mortgage brokers who have access to a wider variety of loan products and are more motivated to originate loans and build relationships may be a better source for house flippers.
Commercial Mortgage Conduits
A variety of funds have turned to commercial mortgage lending to fuel their profits. Many are targeting house flippers and landlords with blanket mortgage offers and lines of credit. Despite the advertising these are not always the easiest sources to work with for the smaller and newer investor. Though there are advantages in simplicity of having one major backer for those that are experienced and are well capitalized.
Real Estate Crowdfunding
Real estate crowdfunding has been growing in popularity. It is still evolving and finding its legs, but awareness is growing. Many smaller institutional lenders are finding these channels a great way to add to their debt portfolios, and are willing to put in a lot of capital. Still, these platforms can be difficult for small investors to use. Most notably, those who are attempting fundraising are often severely underestimating the time and cost burden associated with organizing themselves to raise money via crowdfunding and to market their opportunities. It can work, but be prepared to spend a lot.
Home Equity Lines of Credit
An alternative source of funding for those just starting out is using home equity lines of credit on existing properties, or unsecured personal loans or lines of credit. These can be highly flexible and efficient sources of cash for house flipping. Just be aware of the risks, and cautious when taking on debt that could impact your personal credit or residence.
Rehab Lenders & Hard Money Lenders
Specialist rehab and hard money lenders have been making a comeback over the last year or so. They still aren’t offering the easy financing of 2005, but they can be useful. They generally understand the needs of investors and dynamics of fixing and flipping houses much better than other lenders. Most will still expect you to have some skin in the game.
Private Lenders for House Flipping
Private lenders remain one of the most attractive sources of capital for flippers. This is flexible funding, typically with lower costs than other financing channels, and more control over terms and payments. Private real estate lending continues to rise in popularity with those with the money too. This trend should continue at least until CD rates are back up to the 5% range.
