I am trying to do a flip and want to take advantage of the low rates and down payment options of traditional lending, but I’m worried I will not have enough money for the improvements I want to make on the property. I heard on one of the podcasts about the option of using private money to pay the 20% down payment for traditional lending, and while my plan is slightly different, I was wondering if it would be possible to mix the two types of lending, in my case the traditional lending to purchase the property and the private money to fund the improvements. Does this sound like it would work? One issue I am running in to is that a lot of private lenders I have talked to have a minimum amount that they will lend. Are there any other good options?
Warner Robins, GA · Member since 2016 · 244 posts · 167 votes
6y
I am currently using a similar strategy. Banks in my area offer renovation loans for 85% of project cost (purchase plus rehab). i use private money to make up the difference on the renovation costs.
i have also used this strategy and instead of private money, used zero percent interest credit cards. if you have good credit and are disciplined, credit cards can be a great source of capital. many offer 0% interest for 12 months or more. i use the bank product to buy and start the rehab, and put the difference on the credit card. when the property sells (or refinances) i pay off both.
Disadvantages of credit cards: you need to have good credit to utilize this, and as your balances increases your credit score decreases. once the cards are paid off your credit score will just back up quickly, but you have to plan for the swings if you are looking for additional lines of credit or mortgages. mine can swing as much as 100 points based on where im at on the projects. the good news is ive applied for loans only a week or two after paying $50,000 in credit cards off and my credit had already jumped back up to great levels.
Also remember that once the zero percent interest periods end, interest rates typically skyrocket (some as high as 23-28%). be careful to watch your timing. Continue to manage your overall credit, and if you approach the end of the period you can typically roll the balance over to a new card for 1-3% one time fee. Thats still way cheaper than even the best 3% APRs out there.