5 Steps to Securing Your House Flipping Loans

The first question that most people interested in fix and flip investing have is usually about the money. How do you get the money you need to pay cash for a rehab property, particularly in the current market where home values are only going up around the country?

There are three basic options for getting house flipping loans: banks, hard money lenders, and private money lenders. Banks tend to have the strictest lending policies and generally don’t like lending to house flippers. With a bank, you’ll face a lot of red tape and may not get the full funding amount that you need. Hard money lenders are much more lenient – perhaps too lenient. Your investment may not be in the best hands with a hard money lender, and you’re unlikely to get great loan terms with that route.

The funding option that most house flippers prefer is private money lending. Private lenders are just that: people who have capital to invest. Private lending firms are set up to give their lendees swift access to capital while providing the people fronting the cash with set returns on their investments backed by the security of a home deed. It’s a positive setup for everyone involved.

Here are five steps for securing residential rehab loans from private money lenders.

• Do your property research.

Even before you start looking for a loan, start getting a sense of the housing market and what types of properties you’d be interested in flipping. In the current marketplace, very few foreclosed homes are on the market, so you might have to look to luxury flips in order to make a solid return on your investment. Is that something you’re up for? How much of your own capital could you put towards a flip? Where would you like to flip homes? Do you have an accountant? A lawyer? A reliable contractor? Experience with any of those fields yourself?

These are all questions you should be prepared to address before seeking funding. The more you know about flipping homes and your particular investment goals, the more likely lenders will be to invest in you.

• Do your lender research.

Don’t settle for the first private money lender that you find. Look around to find firms that have strong track records, happy clients, and reasonable terms. Talk to current and past clients, look up the firm’s rating with the Better Business Bureau, and make sure that the terms that they are offering are reasonable.

• Go over the lending terms with a fine-tooth comb.

Never trust that a lender has your best interests at heart. They’re in this business to make money, just like you. A good lender should provide you with terms that are mutually beneficial and encourage a long-term lending relationship, but not every lender is created equally. Make sure that the terms are fair with regard to your own house flipping track record and your personal credit history. It’s a good idea to have an accountant or a real estate attorney go over any loan agreement to point out any hidden loop holes or fees.

• Get Pre-Approval.

Once you know who you want to fund you and have the terms all generally agreed upon, ask for pre-approval with which to begin your housing search. Having a certificate of pre-approval in hand will be a huge bargaining chip in your favor as you make offers on desirable rehab properties.

• Get to work!

The best way to improve your loan terms on future flips is to do a great job on your current flip and pay back that loan in a timely manner. Use the finances available to you to get construction moving swiftly so that you can turn around and resell the home within a matter of months or even weeks. If all goes well, your gross profits should be enough to pay back your loan and pocket a nice chunk of change before moving on to the next project.