Using Hard Money to Flip Houses
How to Flip a House with Hard Money
If you’ve got a bad credit score or no track record when it comes to investing in property or flipping houses, obtaining traditional finance to flip a house is quite likely off the table. This doesn’t have to mean that flipping houses as an investment strategy is off the table altogether. An alternative and viable option for many property investors is using hard money for real estate to finance your property flipping dreams.
The pros of hard money fix and flip loans
There are a number of reasons using a hard money loan for flipping houses, or a purchase and renovate loan, is an ideal option. For instance, hard money loans:
• Close quickly. Unlike traditional lenders, hard money lenders like RehabLend can close a hard money fix and flip loan incredibly fast. This allows you to act quickly on a fixer-upper and ensures you won’t miss out on a great deal.
• Are for short periods of time. This is ideal for fix and flip projects, which usually take six months. You don’t want to be locked into a loan for more time than you need to be.
• Are available to people with bad credit scores and no history. Because hard money loans are asset-based real estate loans, your personal financial situation is less important than the potential of the property you’re acquiring. Most asset-based hard money lenders will usually base their loans on either the After Repair Value (ARV), a percentage of the purchase price, as-is value or total costs. They may also base their loan on a combination of all these things – everyone’s approach is different.
• Don’t require you to put in too much of your own money. Another reason we recommend hard money loans for flipping houses is the fact that you don’t need to outlay too much of your own money. This means you can keep your personal money in reserve as a safety net or take on more than one investment at a time, allowing you to diversify and grow your portfolio faster.
• Can be used for seriously distressed properties. Generally, hard money lenders are able to see the potential in properties that need a major rehab and will therefore issue loans for properties that traditional lenders tend to steer clear of.
• Vary greatly. When it comes to hard money fix and flip loans, no two loans are the same. Because hard money lenders aren’t bound by the same requirements as traditional lenders, they each have their own approach. Accordingly, hard money loans offer varying underwriting criteria, borrower requirements, structure and terms. This means you’ll have plenty of options to find a hard money lender that can meet your needs and offer you a deal that best suits your situation and optimizes the potential of your investment.
The cons of hard money loans for flipping houses
While hard money loans are certainly a great option for flipping houses, there are things to be aware of. For starters, because hard money loans are considered risky, they come with higher interest rates and higher fees. In addition to standard fees, hard money lenders often charge additional fees including those for credit checks, loan documentation, inspections, appraisals and more. It’s important to check whether these fees are included when signing up for a hard money loan as if you aren’t aware of them, you’ll run the risk of blowing out your budget.
You also need to be aware that there are risks involved for you – the main one being if you default on the loan, the hard money lender can take control of your property.
Like any loan, do your research and make sure you know what you’re signing up for.
What to look for in a house flipping hard money lender
Choosing a hard money lender for your house flipping venture is more than just the best rates and fees. You want to choose a lender that is genuinely invested in your project – without getting in your way. You want to work with a lender who is going to fund reliably when they say they will, but won’t be calling you every day to check that things are on track.
Things to ask a prospective lender include:
• How many fix and flip loans they’ve issued
• Whether they fix and flip property themselves or finance only
• How they underwrite their loans
• How long it takes to close the loan
• What fees are involved
• What the loan actually covers – if you need to borrow more than just the purchase price, you need to find out whether the loan on offer will cover the cost of some – or all – of the renovation
• What your options are if the project takes longer than planned
You might also want to ask how about their application process and how easy it is to secure a loan for your fix and flip project. Many lenders, including RehabLend, allow you to apply online, making it easy and convenient to do at a time and place that suits you. Once you’ve found the property you want to purchase, the next stage is property underwriting during which your hard money lender appraises and approves the property. This is can usually happen quickly, allowing you to commence your property flipping venture without delay.
At RehabLend, we genuinely care about our clients and want each one to succeed. We offer the best hard money loans that are designed with your success in mind. To find out more about our competitive rates and terms, click here or arrange a call with a member of our helpful team.