Dinner parties are not my thing, but my wife routinely drags me along anyway. Someone inevitably asks what I do for a living. And, when I tell them that I am a professional real estate investor, their ears perk up and they say, “Oh—I’ve seen how that’s done on TV!”
While the television shows make real estate investing look like entertainment, there’s a lot to the business that they don’t show you. One of the biggest challenges that you won’t see on TV is how to finance a fix and flip in the first place. Not surprisingly, it’s also one of the first hurdles that newer real estate investors face. So, put down your remote control. I’m going to tell you what your top options are.
Top 3 Options for Financing a Fix and Flip
The folks on TV might have more money than sense. Sure, it always turns out alright for them in the end, but there are risks to residential real estate investing. If you’re like most people, you don’t have money to gamble with. You need to make sound decisions about financing your fix and flip opportunities. And, that means knowing which funding options are most suitable for reaching your investment goals. Here’s the top three that are most commonly used.
Spending Funds You Already Have
If you’re coming from a corporate job to start in real estate investing, you might have a stash of cash that you can use to fund your first couple of deals. The good news about this option is that, if you manage the fix and flip correctly, you’re likely to earn more on your money than if it was still sitting in your savings account. And, once you sell, you can use the returns to fund your next deal.
The flipside, of course, is that your first foray into real estate investing might not turn out as you hoped. If you haven’t navigated the ins and outs of rehabbing a house to sell before, it’s possible to make some pretty big investing mistakes—and lose your seed money altogether.
Leveraging Funds From A Self-Directed IRA
Unlike traditional investment funds, a self-directed IRA can be used to invest in a range of commodities, from precious metals to foreign currency—and real estate. Of course, there are some rules around doing this. But, you have the opportunity to yield a lot more returns than that 2-3% your currently making off your Coca-Cola stocks.
When you leverage self-directed IRA funds, however, you are still using your own money and shouldering that risk. If the investment goes sour, so does your retirement security. And, you won’t have an investment professional to “gut check” your decisions and actions. So, you’d best know what you are doing.
Borrowing From a Hard Money Lender
Hard money lenders can offer some significant advantages for the financing of a fix-and-flip investment. A hard money loan is a short-term funding option that is based on the value of the house you are investing in rather than your credit score or employment status. They can cover both the cost of purchasing the house and the renovation costs, often giving you up to 12 months to flip the house and pay the loan off.
Some hard money lenders are more reputable than others, however, so you’ll need to carefully vet your possible source of funds. Do they have a proven track record with investors that match your profile? Do they have extensive experience showing they know how to effectively finance fix and flips? Can they offer you terms that improve your chances of seeing good returns? For the best hard money lenders nationwide, you’ll be able to easily check these basics off your list.
Putting the Best Hard Money Lenders to Work For You
To find the best hard money lenders to work with, you could spend a lot of time researching and comparing your options. It’s not a glamorous task—and you certainly won’t see them doing it on TV. But, having a plan for financing your fix and flip is one of the most critical parts of being a professional real estate investor.
But I no longer waste my time worrying about funding my investments. As a HomeVestors® franchisee, the best hard money lenders are right at my fingertips. All I have to do is input the terms of my deal into a program on my iPad, and some of the most reputable hard money lenders respond with competitive terms that make my deals go smoothly. And I can trust their experience because they have experience lending to over 1,100 HomeVestors® franchisees like me nationwide.
It’s not enough to just know how to finance a fix and flip. You need access to the best hard money lenders in the business. Luckily, that’s easy to get—just contact HomeVestors® today.
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