This is a great question, and I wish I would have found a better answer to this question when I first started flipping houses. I relied on my own cash, and various forms of unsecured personal lines and loans which, of course, negatively impacted my credit until I flipped the house and paid off the debt.
Now that I’ve been a real estate investor for six years, in my opinion, hard money is the best way to go. When I say “hard money”, I’m referring to lending institutions that are not banks.
These companies exist to provide financing to people flipping houses. There a many of these kinds of companies, but my favorite is Lending Home. With Lending Home, you can borrow up to 90% of the purchase price and 100% of the rehab as long as your total loan does not exceed 75% of the after-repair value.
Let’s Look at An Example
Let’s say, you want to purchase a house for $80,000, and you need $45,000 to pay for repairs, and the after-repair value is estimated at $160,000.
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With Lending Home, you can borrow up to 75% of the $160,000 which comes to $120,000. Lending Home will loan you 90% of the purchase, which would be $72,000 in this case, & 100% of the rehab which, in this case, is $45,000. So, the math works. $72,000 + $45,000 equals $117,000 which is less than the maximum loan amount of $120,000.
Determine Your Out-Of-Pocket
Now, there are financing fees along with other closing costs which would impact the amount of money you would have to bring to closing, but Lending Home can provide you with an estimate of what their fees would be, and you can get the additional closing costs from the Title Company before you close, so you know ahead of time what your out-of-pocket amount will be.
The Renovation Loan
Additionally, the renovation loan would be paid out in draws as you complete various stages of the renovation process. More specifically, as you complete repairs, you simply email Lending Home, then send out an inspector to verify the work has been completed, and Lending Home then wires you money for completed work.
What Else I Love About Lending Home
Lending Home is essentially extending bridge loans. Short-term loans that need to be paid back in 12-months with interest-only payments. No prepayment penalties. This gives house flippers ample time to purchase, rehab, and sell the property.
What I love the most about Lending Home is that one can borrow up to $5MM at once! This provides a vary scalable solution for house flippers who want to secure short-term financing on multiple projects.