5 Ways To Fund Your Flippin' Deals

Wow, there are actually FIVE? Yes, and probably more.

Unless you're planning on only wholesaling deals (securing/assigning deals by contract), you need MONEY to acquire properties for rehabbing/flipping.

Pretty obvious, right?

Actually, if you are a wholesaler, you should pay attention to this information, as well, because the more money your buyers/rehabbers have access to, the more properties they are likely to buy from you - especially if you are the one that points them to creative sources of funds, thus becoming more valuable to them.

With that said, this article is for any type of real estate investor at any stage (if you're rehabbing and holding properties, you'll need to eventually convert to more conventional financing to be cash flow positive).

As a professional from the financial side of the real estate biz, coming into real estate investing humbly, here's what I've found to be the only 5 ways to fund fix-and-flip deals, along with a little detail on each.

1) CASH

Cash is King, right? Yes... unless of course the US Dollar crashes. If that happens, then Currency Royalty will be food, water, shelter, booze, cigarettes and weapons. But, outside of that, having plenty of cash (which you are okay with losing) is the cheapest most flexible way to go. Let's face it, even most successful REIs don't literally have millions in cash to throw around, so it's more than likely that you will be seeking other sources of money in addition to some of your own cash. Having cash doesn't necessarily mean you have literally banked up a stash of Federal Reserve Notes organically. It could mean that you just have ACCESS to cash while someone else doesn't. It's more of an ability to fund than the substance, itself, in my opinion.

Best way to access this type of funding: SAVE YOUR EARNINGS.

2) PARTNERS

Although it's not the majority of REIs, there are many players in each market who DO have plenty of cash, or at least ACCESS to cash. One very viable option after finding a hot deal is to ask established REIs who have cash to partner with you on an individual deal in exchange for a split of the profits. This is both the most expensive way to fund a deal, but also the least risky. I venture to say that most of the big baller REIs these days have done many deals this way, on both sides of the table.

Best way to access this type of funding: NETWORKING.

3) HARD MONEY

It's often said by savvy entrepreneurs that ACCESS to capital is more important than COST of capital. Because flipping properties offers such enormous profit margin potential, thousands of REIs over the years have made millions by essentially buying high and selling higher. You can typically find a solid hard money lender in any local market, and most will only operate within a certain geographic boundary, because they have to be familiar with the local market in order to feel comfortable lending their own money, or that of their investors. You can expect to pay between 2-15 points per transaction plus 14-20% Annual Percentage Rate, with a holding period of 30-90 days on average. One major advantage to hard money is that is is mostly dependent on the deal, and less dependent on the financial position of the borrower. Often personal credit scores down to 600 (and some times lower) will be acceptable. Funds can typically be provided within just a few business days. Challenges of hard money include only getting up to 60% or 70% LTV, and having to wait for "draws" during different phases of your project. There are plenty of resources on the BP site for these types of lender, and depending on the market, I may be able to direct you to one.

Best ways to access this type of funding: NETWORKING; ; WEB SEARCH; BP RESOURCES

4) PRIVATE MONEY

A big trend is developing all across the country in which individual investors are looking for better, safer vehicles to invest their retirement savings, outside of typical mutual funds, stocks and bonds. Companies exist that administer contracts between real estate investors and these individual investors, allowing for an exchange of unlimited funds for a particular period of time, typically at a rate of between 8-12% APR. The benefits to an REI are a relatively low rate, without origination points, and full discretion to use the funds as needed. The speed of funding is really dependent on each investor/lender, themselves. With effective networking, this could be a bottomless source of capital. The downside is that it often takes a lot of time to find and build such relationships, to build the trust of private investors, and to maintain the relationships (i.e. NOT lose their money). However, this type of funding allows for the private investor to receive a security interest (property lien) on the subject property, which is a lot more than they would receive when investing in mutual funds, stocks and/or bonds.

Best ways to access this type of funding: NETWORKING; BP FORUMS; BP RESOURCES

5) UNSECURED BUSINESS LINES OF CREDIT (BLOCs)

This is a little-known alternative/supplement to each of the above money sources, which effectively creates discretionary cash for any type of investor, typically between $40,000 and $175,000. The strategy involves acquiring multiple lines of credit from 5-8 different banks around the country, ranging from $10,000 to $30,000 limits on each, with a corporate credit card on each, and some with check writing privileges. The overall cost of this money ranges from 10-14% APR. One huge advantage of this method is that an REI can re-use the same funds over and over without having to pay points on each deal, nor wait for a lender to "draw" money to them in phases. It can be used for incidentals in the rehab process and/or for the entire process from acquisition to marketing/listings costs. What's the catch? The REI (or a co-signer) need to have at least a 720 personal credit score and a corporate entity (not sole proprietor). However, it is a stated income/assets program. You'd want to apply for this type of funding BEFORE you need it for a deal, as it can take 2-4 weeks to get approvals and liquidate/consolidate each line to cash inside your bank account.

Best ways to access this type of funding: NETWORKING; BP FORUMS;

There they are, friends and colleagues - 5 Ways To Fund Your Flippin' Deals! If you have any other ideas or general categories for funding that I forgot to mention, please comment here. 

Also, feel free to reach out to me if you need help figuring out which methods/sources are best for your particular situation and/or how to access them.