What is the most common, or best way to finance rehab costs for flippers? Do traditional banks have rehab loans to give out? I know about the 203k loan but haven't heard it used much for flipping. Do most flippers use hard money lenders until they have a solid pool of cash themselves?
Please share your financing stories and if you would recommend it. I know it would definitely help me greatly as I look towards doing my first flip, and I'm sure others as well.
Well your own cash is, IMHO, the best way becasue there is no interest or fees to use your own money.
Having said that, I believe 203K is for homeowerns. I did a 203K on my house when I purchased it and it worked out well. I don't think you can use 203K for investment properties. So unless you plan to live in the house for at least 1 year, then that's not an option. However, it would be a great option if you plan to get a du/tri-plex and live in one unit and rent out the others.
Some other finance strategies include, using a Home Equity Line of Credit (HELOC) (provided you own your own home and you have enough equity built up), Hard Money Loans (HML), private financing / partnerships (aka asking parents, relatives, friends, co-workers, strangers to put up money and you do everything else).
As @Alexander Merritt mentioned, 203k financing is a great option if you plan on occupying the property, perhaps in the case of a duplex or tri-plex where the other units will be rented out. It is noteworthy, though, that the requirements for FHA 203k financing are still pretty strict and the loans take (at best) 60-90 days to close.
Some other options that may be more feasible (and time-sensitive) for you are Hard Money and Private Loans. Although the interest rates can be slightly higher than a 203k loan, they will not eat 50-60% of your profits (as a partner would), and can close in 10-15 days. In that sense, they are much more aligned with a fix and flip, quick turnover strategy.
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