fliprent

Real estate investing books often imply there is no need to worry about funding your deals.  Just get out there. Start making your calls, start setting appointments, start writing contracts, and the money part will be easy.  I agree that finding the good deals are the hardest part but finding financing for your deal can be equally as challenging.  For beginners, there are so many options that it becomes overwhelming.  There are money partners, private investors, hard money loans, bank loans, home equity lines of credit, credit lines, credit cards, downsizing, subject to, owner carry backs and wholesale flipping all to choose from.  Every author you read has a preferred method for financing deals.  Luckily, when it comes to flipping houses, things are a little simpler. 

 There are lots of creative ways to finance a flip but there is only one way to insure that you are the only one in control, taking the risks and making a profit.  The option that I am conveying here is cash.  Cash can mean a bank loan, a mortgage, HELOC, savings account, credit cards, and even owner financing.  Bank/Mortgage rehab loans are my favorite financing method for flipping houses.  They are offered by lending divisions of banks and also by mortgage companies.  They require that you have good credit however, so it may not be available for everyone.  In the beginning, banks will require that you personally guarantee the loan, which means your personal credit report will be used and your personal assets will be at stake.  This is called leveraging and it is a time honored practice for investing in real estate.  The specific loan that I prefer is typically called a rehab loan.  They are all different and they are not offered by all banks.  In fact the best loans are usually in house products, from specific banks that specialize in loans for flippers.  You may need to speak with other flippers and investors in your area to find them.  If you are in area with lots of re-development, they will be relatively easy to find. 

Many of these loans don’t require any out of pocket expenses for the purchase of the property, and will loan you the amount required to purchase the property and the estimated costs for repairs.  The points and interest rates are not nearly as high as hard money lenders and they are more flexible in terms of the time frame to complete the rehab (usually 12 months).  They can be used for flips that require as little as $5,000 dollars in repairs.  After 12 months you will be required to refinance the loan into a permanent loan or pay it in full (have it sold). Often the refinance will be done with the same bank.  If you plan to flip the house within a one year time frame the rehab loan works very well.  One downside is if you expect it to take longer than a year, you will need to pay closing costs twice.  Once at the initial settlement and again once you refinance after 12 months.  As I always say, you make money when you purchase the house.  Take this extra cost into consideration when you make your offer.     

These loans are also available from residential lenders but they are usually limited to no more than 4 unit buildings, depending on your location and the bank.  Anything larger may require a commercial loan.  One of the most attractive parts of commercial loans is that they are non recourse which means that your personal assets are not being used to back the loan.  I will write about commercial loans in another post.        

Finding the right bank/mortgage company to finance your investments will be your first step.  As I wrote above, ask other investors in your area. A good way to make connections is through your local real estate investor associations.  You can find them online and in real estate sections of your local publications.  Two national associations are REIA.org and nationalreia.com.  There you will find a list of local reia chapters.  Independent real estate investor associations and clubs are located in cities/counties around the country. You don’t need to join to attend the meetings but there may be a small fee at the door.  It would not be prudent if I did not tell you about the catch.  Many of the “gurus” give seminars at these meetings in an attempt to get you to buy or attend their program.  Also there may be members that are strictly interested in getting new members to use their services, i.e. property wholesalers, hard money lenders, etc.  This is not to scare you away from attending the meetings.  Simply use your common sense.  Attend several and get to know people before you spend your hard earned money on the next great wealth building real estate super plan or buy wholesale properties from the first wholesaler you meet.