6 Wicked Cool Ways To Finance Your Next House Flip
OK, I’m from Boston… and I make no bones about it.
If you’ve ever seen any of my videos on Youtube, you know that my Boston accent is wicked bad.
And when I’m excited or really passionate about something, I say it’s “wicked cool” or its “wicked awesome” *.
I’ve come to realize that no matter what, I simply can’t talk differently than how I do – and that’s just the way it is.
Some days, I wish I could talk like some well-spoken guy with a big vocabulary from some other part of the country…but that’s just not me.
*And by the way – for you non-Bostonians, when I say something is “wicked good”, it does not mean it’s “evil, sinful, immoral, wrong, morally wrong, wrongful, bad, iniquitous, corrupt, base, mean, vile” – as Webster would define it. It merely says its really, really great.
I have not tried to hide the fact of who I am and I’ve approached my house flipping business the same way. When investors do business with me, I don’t try to be someone I am not…I’m just myself.
“Wicked goods” and all…
My father once told me some of the best advice I’ve ever taken, just before I went on my first job interview:
“Mike, just be YOURSELF”
I took it to heart and I’ve done it no other way since that day.
Wicked Good Financing and Being Yourself
When it comes to funding your flips from investors, its easy to fall into the trap of trying to be someone you’re not. You think that in order to get the financing, you need to sound wicked smart…er, irrevocably erudite…
Don’t do it.
Don’t use big words. Don’t pretend you’re a big deal if you’re not.
Just be open, honest and transparent…and most of all: BE YOURSELF.
It works so much better than trying to be the Donald Trump of your town…when you aren’t.
And believe it or not, you end up raising far more money that way.
So when you are raising money for your flips, use your normal language and don’t try to be someone you aren’t. People who are looking to invest with you are much smarter than you may think and if you try to fake it, they’ll know.
Having said all that, there are six wicked cool ways to finance your next flip which you may have never thought of.
A partner is the first person you should approach and ask for funds to invest in house flipping. You should also consider people you are acquainted with such as your attorney, dentist, doctor, or an investor in the stock market.
Once you find an investor, you can convince them to invest in your project by suggesting to them that all they have to do is invest their money and not their time. You will do the renovation, the flipping and still share the profits 50-50.
If you are just starting out, you should avoid forming partnerships with your investors. Yes, forming formalized partnerships sounds like a great deal but you should try as much as possible to stay independent and see how things work out first. Keep in mind that there are just as many people who have formed partnerships and have succeeded as those who have failed.
2. Hard Money Lenders
If you know you can flip property quickly, then hard money lenders can be a valuable source of funds. They usually lend money at interest rates which are very high. In addition, they also charge points. So the quicker you repay the loan, the less interest you will have to pay.
Hard money loans should be paid off very quickly if your lender, for example, charges you 14-20% and with 4-6 points on top.
Say you borrow $100,000 at an interest rate of 16% and it takes you half a year to repay, you would be charged an interest of $8,000. If you have points to pay at say 6 points, that would be an extra $6, 000, which means that your interest charges would add up to $14,000.
If you were to flip the house in three months, you would pay an interest charge of $6, 000. Hard money lenders are a great source of financing if your numbers work.
3. Private Investors
I have previously written about how to NOT pitch investors to fund your flips so I will only briefly touch on the subject.
A private investor is a person, who is not associated with any particular bank or business, willing to invest on your project. Finding a private investor may be as easy as looking close to home. People like friends and family; from co-workers to fellow churchgoers to members of your local chamber of commerce to your family dentist can all act as private investors. They are essentially people with disposable incoming looking to make a good return on their investments.
Interest rates can go as low as 4-5% depending on the relationship you have with the investor but are usually higher in the 8-10% range, but there are cases where people end up paying more than 12%. Another way investors get their money back is by agreeing to take 50% of the profits without charging interest on the loan.
4. Home Equity Line Of Credit
This is a risky approach and it is not recommended at first but one you can tap into later. It requires self-discipline and complete adherence to the house flipping rules, which I have constantly emphasized in the past.
Big banks have very attractive interest rates and the amount of money they are willing to give you corresponds to your risk tolerance. There are some cases where home equity line of credits is priced at 2%. This is probably the best product to approach a bank for if you are willing to go through the long procedures.
5. Bank Officer Guidance Line
As it turns out, many real estate investors do not know much about this product but home builders use it a lot.
A builder can get an official guidance line if they approach a bank for pre-approved lending to build five houses a year. This way, the builder will not spend time worrying about reapplying for funding for every single house on their project because they already have full funding for the five houses.
This is a real time saver and the officer guidance line has to meet collateral rules. Any withdrawal requests will automatically be approved by the loan officer.
House flippers with good credit can get access to this product from credit unions and community banks.
6. Portfolio Line Of Credit
Not the ideal first choice, but if you have substantial equity or you own several paid off properties then this would be an ideal choice for you. Based on the collateral, you can get a line of credit if the bank decides to take a lien on all the properties.
This strategy allows you to purchase properties fast and with “cash” so it is safe to say that this product can give you a significant advantage when purchasing properties.
Just make sure that when you approach any of these sources, remember my Dad’s advice:
“Just be YOURSELF”
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If you do that, you’ll be in wicked good shape…
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I’d love to know what you think of these seven ideas for financing house flips. PLEASE give your comments below in your regional dialect…NO HOLDS BARRED! Thanks!