How to Finance your Fix and Flip Project
Buying a property, either commercial or residential, to fix up and sell again, is becoming a more popular real estate practice, simply known as a fix and flip. These projects are usually tasking and not everyone has what it takes to do it. However, if you have experience with home repair, carpentry, and real estate, then it might be the perfect project or career path for you. However, these projects are usually expensive to begin; below are some things buyers can do to finance their project.
Forming a partnership is both a great way to cut costs and work with someone who has the experience that you might not. Partnerships don’t just need to be between two people. Get together a group of friends to combine your skill sets and money. Working with extra people can also help to get the project completed faster, which means a faster return on you investment. However, you will need to split your profit, so there is some give and take.
Home Equity Line of Credit
If you have little experience with fixing and flipping real estate, then you may want to try to get a home equity line of credit. This works in a similar way to a credit card and a home mortgage rolled into one. Different lending institutions will have different requirements for who qualifies for this loan. For the part, if you have a high credit score and a minimum 40% debt-to-income ratio, you can qualify. This type of loan can give you up to thirty years to complete the project before the loan is totally paid off.
Hard Money Loan
People who have experience with fix and flip loans and projects may be able to qualify for hard money loans. These loans are very short-term, usually lasting for two years or less. People who take out these loans need to know that they will be able to complete the fix and flip and sell the property within that two years to ensure that they can pay off the loan without needing to dig into their own pockets to do so.
Ideally, any money borrowed while working on fixing and flipping a property can be paid back by pure profit. However, it is important to do your research to check how long it will take to repair and sell a property in your area. Once you have these numbers on hand, you can have a better idea of what your cost-to-profit ratio will be.