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Where To Find The Money To Fund Your Flip
By Vic Hurlstorm | November 19, 2008
Real estate investments are quite expensive. Not only do you need the money to purchase the property you will be flipping but you will also need money for the improvements, repairs, and renovations that need to be made along the way. Unfortunately, the real estate business is a tricky business and there aren’t very many traditional lenders that are willing to go full out in support of your real estate investment business venture.
This means you are going to have to come up with a good portion of the money yourself or you are going to have to find someone else to fund a portion or all of your house flip. Let’s talk about first things first, the less interest you pay, the more money you bring home. You want to try to not max out all your credit cards trying to get profits from a property flip if it can be avoided. Merchant accounts aren’t much better but they can help you keep better track of exactly how much money you are spending on the flip and some will even give you 90 days same as cash (this is great if you can complete the process within 90 days).
It should be said that these aren’t methods that are endorsed by the writer but they are definitely possibilities when it comes to funding your house flip. Your best-case scenario would be that you would have the money to invest and assume no real risk in the property flipping process but not many people starting in real estate investing have that luxury.
That being said, one way that is extremely risky (especially if you are nearing retirement age) is to cash out your retirement funds. This is not one of the best methods for many reasons not the least of which is the fact that there are pretty big penalties for doing it like this and you are also risking your retirement security. It is an option however if you are in a bind for your flip. If your flip is successful it’s water under the bridge, the money can be returned or reinvested and the profit from your flip can then help fund subsequent flips or other types of real estate investments.
If you discuss things carefully with your family and decide that you are all willing to take the risk you can also risk your home by taking out a second mortgage for the funds. Again this is not the preferred method because the assumed risk is great for the security of your family. It is very important that everyone involved be aware that flipping houses is a risky investment. Not only is it verr risky because you aren’t experienced enough but the real estate market is also very picky. Your house could sit for several months requiring costly carrying costs before it sells.
Forming a partnership is another way to share the risks and help lighten the burden when it comes to flipping houses. Please keep in mind that this is a very stressful business venture and should be treated as a business venture. For this reason a volatile or fledgling friendship may not be the best risk for a venture such as this. If you do choose to do a partnership you will need to discuss in depth the type of financial and labor investment that will be expected of each partner and the what share of profit that each partner will receive as well. You should also consider carefully whether you are willing to risk the friendship for the sake of profits or would you rather go with a partnership that isn’t a close friend (most real estate investment groups have people willing to help with the financial side and assume the risk for the lion’s share of the profits).
Banks will typically fund a portion of the property costs if you can come up with an adequate down payment and show them a well thought out business plan. Do not rely on banks however if you have poor credit, lack a business plan, or do not have a sizable chunk of your own money to invest in the venture.
Please make sure you check out my real estate blog at http://cashmoneyhousebuyerblog.com
Topics: investment properties |