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How To Find The Money To Fund Your Flip
By Vic Hurlstorm | November 17, 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 very tricky and there aren’t many traditional lenders that would be willing to go all out to support you in 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 do not want to max out your credit cards in search of profits from a house 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).
I should tell you that these aren’t strategies that are endorsed by me but they are definitely possibilities when it comes to finding money to fund your house flip. The best-case scenario is that you would have the money to play with and assume no real risk in the house flipping process but very few people trying to get started in real estate investing have that luxury.
That being said, one way that is probably to risky for most (especially if you are nearing retirement age) is to cash in 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 property flip is successful it will be water under the bridge, the money can be repaid to the lender or reinvested and the profit that came from the house flip can then be used to fund your next flip or other types of real estate investments.
If you talk about things carefully with your family and friends and you decide you are all willing to take the risk you can also use your home as collateral by taking out a second mortgage for the money. 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 risky because you aren’t experienced but the real estate market is fickle. 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. Keep in mind that this is a stressful business venture and should be treated as a business venture. Because of this reason a volatile or not so good friendship probably won’t 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 take into consideration whether you are willing to risk your friendship for the sake of profits or would you prefer to go with a partnership that isn’t one of your close friends (many real estate investment groups have investors that are willing to help with the financial side and assume most of the risk for a bigger share of the profits).
Banks will usually fund a part of the property costs if you can come up with a sizable 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: Real Estate Investing |
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