Real estate has proven one of the most stable investments. Typically, real estate offers opportunities of income in the form of rental properties through rent. As places increase in value over time, owners accumulate wealth through monthly payments from tenants.
Another way to gain income through real estate is the fix and flip route. This entails purchasing property, repairing it to improve it as quick as possible, and then resell it for a profit. Investors find this fix-and-flip method particularly attractive. But, repairs to these cheap properties are expensive. Few people have the cash required to purchase the properties.
There are options for financing these types of loans. The type of loan depends on the situation of the person in need of the loan and the requirements of the lender.
Friends and Family
If you have a generous family or circle of friends, you may be able to ask them for help. You may not even have to pay much or any interest if you have friends and family rooting for you! It’s also a great way to get out of fulfilling requirements such as a credit check. But remember when you go this route, how asking for money can be awkward and embarrassing. A debt between friends or family can risk not only the property and your credit, it threatens the life-long relationships people important to you.
A mortgage company can issue you a standard loan just like any other bank. Of course, you pay it back with interest, over a span of twenty-thirty years.
This is arguably the most obvious option for financing your fix-and-flip property. This option is very common, but it also has numerous drawbacks. The requirements tend to be strict. There is no flexibility if you don’t satisfy the requirements. Plus, there is no guarantee that you will be accepted.
Even if you are granted a loan, they tend to be for very long terms (20 or 30 years). Many banks charge a large fee for paying off the loan early, and this will be detrimental if you plan to flip a house quickly! You may have to decide between paying off a loan for the next 29 years versus taking a big loss on the property.
If you have the cash to purchase the property outright, this may not be a bad plan. This allows you to bypass credit checks and eliminates the need to pay any interest, as with the previous method. It also prevents the uncomfortable situations that arise when you borrow money from friends and family. However, there are still a few drawbacks. Cash seems great until you consider it will actually cost you to renovate your property.
Hard Money Loan
A hard money loan is often the best option for a fix-and-flip project.
First of all, it’s more flexible than the other options. If your credit check doesn’t pass, it’s not the end of the road. Hard money lenders are mostly private, indicating their flexibility with loans. Instead of mortgage loans, the duration of hard money loans are short. Because they’re often 9 months or shorter, don’t anticipate the need to pay large fees to get out of a loan that didn’t make sense from the beginning.
Another perk of hard money loans is that they often include extra cash for renovations. With the exception of the down payment, you will need little to no cash to get into the real estate fix-and-flip industry.
Contact Center Street Lending today to get started with your hard money loan.