Real estate funding is a big concern with house flippers. When people ask us how we got into flipping, they usually ask how we got the money and how to fund your flips. After all, especially in today’s recovering economy, most people don’t have $200,000 or more lying around in liquid assets that they can spend on a flip. While we only spend a little bit of time on this detail on the show, Christina and I do spend a lot of time on how to fund your real estate deals in our seminars and workshops. So let’s go over some of the ways you can find the money for your flips.
Do you know anyone who’s looking for a good, solid, and reliable investment? From watching Flip or Flop, you know that we do a lot of work with my friend Pete de Best. Our agreement with Pete is a lot like real estate funding with any other partner investors.
Pete puts up the initial investment money while Christina and I put in the sweat equity. Pete earns his half of the profits from our sales by putting up the initial investment capital. We earn our half by putting in the legwork to get everything done and to sell the house quickly.
There’s really only one big risk with working with a partner like this; if you can’t sell the house, your partner won’t get their money back, and they certainly won’t want to work with you again. In case of this kind of situation, you’ll want to make sure that you have a concrete contract that covers what happens if the house does not sell or if you take a loss on it.
Much like a partner investor, a private investor isn’t associated with a bank or other type of large lender. In fact, your relationship with them will be much like your relationship with a partner, but the deal will be slightly different.
In this case, you’ll agree on a loan or investment amount that they will give you to purchase and rehab a house. You’ll then agree on an interest rate (usually anywhere from 4-10%) and a timeline for you to pay them back. You will be required to pay them back their initial investment plus any interest, whether or not you sell the house in a timely manner. If you don’t have any very close friends or family willing to invest in your flips, this is a great way to approach acquaintances and colleagues for a deal that is very similar and will not cost you a great deal if all goes well.
Hard Money Lenders
If you don’t have any friends, family, or colleagues who can invest with you, you may be able to take out a hard money loan. You can expect an interest rate of somewhere between 14-16%, and there’s usually a fee on top of the interest rate that you’ll have to pay, as well. If you sell the house quickly, though, you’ll barely spend anything on interest, and you’ll only have to pay the fee.
Going through a hard money lender is not a bad way to find real estate funding, but it comes with a pretty high risk. If you don’t sell the house quickly, you’ll be paying on a high-interest loan, and you’ll lose money fast.
If you want to know more about how to fund your flips, check out our Success Path Education workshops. Christina and I are more than happy to teach you how to fund your real estate deals, along with all of the other ins and outs of house flipping.