My friend Sherry spent years feeling frustrated after coming home from her last overseas tour. The injury to her left leg prevented my friend from returning to her work as a police officer in the same capacity she’d grown accustomed to. And, the idea of sitting behind a full-time desk wasn’t sitting well with her. Deciding it might be time to strike out on her own, she called me.
Out of all the business opportunities available for disabled veterans, it was buying, rehabbing, and reselling real estate that appealed to her most. How to get her new venture up and running without adequate funding for flipping houses, however, seemed daunting. That’s where I came in. Having been at this business for years, I knew what her options were and how she could best choose among them.
Top Funding Options for Flipping Houses
In order to make a good business out of flipping houses, like I have, you have to buy enough homes to renovate and sell at a profit every year to keep the cash flow coming. And, to make that money, you’ve got to have money to begin with. That may sound unfair, but it’s true—and, it’s possible. Even when you’re a new investor, like Sherry, you have options for funding your deals. But, since some options are better for flipping houses, and more accessible to new investors, than others, we’ll review the top choices you might want to consider.
If you’ve got cash on hand, especially for buying your first investment property, that’s probably going to be the easiest, and certainly one of the fastest, ways to fund a deal. And, assuming you’re able to buy low and sell high, you can take your returns and use them to fund the next flip. It’s possible to build some financial momentum this way while at the same time building your investing experience should you need to get a hard money loan later. But, professional real estate investors come from all walks of life and not every path is flush with disposable cash—not enough to buy and renovate an investment property, anyway. So, while it is an option, it’s not one that everyone has.
Not your typical retirement vehicle, a self-directed IRA allows you to choose what to include in your portfolio from a broader range of investment options, including real estate. And, because flipping a house has the potential to produce a higher rate of return than the annual yields of most stocks and bonds, it’s an option that can help you fund your future as much as it may help you finance your deals. If you don’t have a self-directed IRA, getting one is relatively easy—just roll your old 401k into one. But, take the time to choose an account custodian you can trust and always consult with your CPA before buying property. There are risks to using a self-directed IRA to buy real estate, like losing it all on a big deal gone bust. So, you’ll want to have all your ducks in a row before you start firing off purchase contracts.
Another option for buying a residential investment property that you can flip is to seek funding from a private lender. Often times, this means simply borrowing money from a family member, friend, or colleague who has disposable cash that they’re willing to loan. But, it can also be an individual from your community with enough capital to make it their business to lend money to real estate investors. If you ask around your network, someone is bound to know a reputable private lender. And, working with a private lender has its benefits. Interest and repayment terms, for example, are frequently negotiable. Unfortunately, this option has its downsides, too. Should market tides turn and you have to sell your investment property at a loss, you may lose more than your returns if you don’t repay what is owed—especially if you borrowed from a buddy.
Unlike conventional lenders, such as banks and credit unions, hard money lenders are willing to loan on fixer-uppers and their repairs, and can often fund a deal in a matter of days. When vying for distressed property in a competitive market, like New York, a fast close will give you an edge. Loan terms will vary from lender-to-lender, but they’re usually well suited for the fix-and-flip investor who wants to get in and out of a project in nine months or less. And, options like interest-only payments let you focus your finances on completing the rehab and getting the home back to market to resell as soon as possible.
Unfortunately, it can be tough to locate a hard money lender to work with you if you’ve never flipped a house before. So, in the absence of partnering with a more experienced investor to loan you their credibility, you may have to find another source of funds for your first few flips. Luckily, some of the best hard money lenders nationwide, like Residential Capital Partners and Sherman Bridge Lending, may be willing to help you buy your first investment properties because they want to be there when you’re able to buy more.
Any one of these funding options, or even a combination of several, may work for you and where you are financially. But, at some point, your real estate investing business will likely lean on using hard money to finance at least some of your deals. After all, if you want to grow your business, you’ll have to expand your access to funding. That’s why it’s never a bad idea to have a few trusted lenders in your pocket that can quickly get you the money you need.
Expand Your Access to Funding at the Touch of a Button
I left a desk job not unlike Sherry’s to pursue my passion for investing in real estate a long time ago. So, the funding sources for my first flips were limited. I didn’t let that stand in my way, however. Instead, I became an independently owned and operated HomeVestors® franchisee. That decision connected me to a network of more experienced franchisees who guided me toward lenders already known to loan to new investors. So, I never had a problem finding the funds for flipping houses.
Since then, things have only gotten better. HomeVestors®’ proprietary software, UGvilleSM, now has a lending portal that allows you to enter information about a property, hit enter, and get different loan rates from several lenders fast. And, these aren’t just any lenders. These are hard money lenders that have been vetted to operate with the same level of integrity as the “We Buy Ugly Houses®” franchise team members do. They all have a strong national presence, too. So, whether you’re flipping houses as a HomeVestors® franchisee in Florida or Ohio, getting the funding you need is only the push of a button away.
If you need more options for funding your property purchases, contact HomeVestors® about becoming a franchisee—and accessing UGvilleSM—today!
Each franchise office is independently owned and operated.