The real estate market continues to offer lucrative investment opportunities for flippers. According to market experts at Realtor.com, the median listing price of US homes reached $289,300 in January 2019. That represents a 7% year-over-year increase nationwide. Regardless of location, those who can take advantage of current market conditions are realizing larger profits at a faster rate.
For investors seeking to secure their first flip, locating funds for the initial purchase can be a challenge. What are some options for finding enough money to buy an investment property?
How Much Will You Need?
Lack of funding is a large contributor to failed flips. Inexperienced investors can misjudge how much it actually costs to complete a flip. Some of the expenses involved in flipping include:
- The initial cost of the property.
- Cost of materials and labor for renovations and rehabilitation.
- Fees for appraisals, fees, and licenses.
- Holding, realtor, and closing costs.
- Interest payments, fees, and down payment for loans.
- Insurance and utilities during the flipping process.
Your final cost depends on these factors, as well as your location and it's unique market conditions. Flippers who are willing and able to do the bulk of the physical work themselves realize a greater return on monetary investments. Spend time researching your potential costs to understand how much you'll really need for a successful flip.
Options for Financing Your First Flip
First-time flippers who don't have enough cash to launch their real estate empire can use these strategies to find the money they need.
- Work with a partner. Some people are interested in investing in the real estate market. However, they may not have the time, skill, or desire to do all of the dirty work. Find someone who is willing to put up the cash for your first flip. When the resale is complete, both parties share the profits. Find potential partners in your family, local business associations, or general investment clubs. Be sure to work with a lawyer to create a contract that protects both sides of the partnership.
- Get a hard money loan. These high-interest, short-term loans don't require stringent financial qualifications like more traditional loan structures. Instead, hard money lenders are more concerned with the condition of the property. The property itself is used as collateral for the loan. The high-interest rates can quickly eat into your profits. However, with a quick resale, these loans are an excellent strategy for funding your first flip.
- Apply for a home equity line of credit. If you currently own the home you live in, use the stored equity to finance your flip. A home equity line of credit is an excellent option for flippers. Interest is only charged on the funds you use, which gives you the ability to control your budget on longer projects.
- Use your personal credit. This is one of the riskier options since a failed flip can compromise your entire financial life. Assess your personal assets. Do you have personal savings, retirement funds, trust funds, whole life insurance policies, or other accounts you may be able to access? Credit cards are a convenient way to get the cash for materials and fees throughout the flipping process.
- Sell your high-value items. Collectors of luxury items may hate to part with their treasures. However, it may be worth it to sell some of your entertainment items in order to fund your flip. Motorcycles, watersports equipment, boats, jewelry, and valuable collectibles can fetch enough money to put a down payment on your first investment property. Many items can be repurchased when your sale is complete.
Trust Deed Capital offers hard money loans for first-time investors in California. Contact us to find out how easy it is to get started on your first flip.