Financing Your Rehab Property

Investing in property has always been one of the most lucrative opportunities available to investors. Currently, the fix and flip world is going crazy with people regularly turning profits of over $100,000 per flip, particularly in states like California and Massachusetts. The secret that most of these flippers have in common is that they don't do it alone.

The vast majority of house flippers use rehab real estate loans in order to leverage their assets and mitigate their risks. By obtaining funding from a bank, a hard money lender, or a private money lender, house flippers are able to invest in more expensive properties and/or a greater number of properties without putting their entire life savings on the line.

Here are a few things that you should know about financing in order to become competitive in the house flipping market:

1. House flipping isn't the only way to go

House flipping is getting a lot of buzz these days, but it's not the only way to invest in property. If you're worried about the risks or all of the work that go into flipping houses, you might be more satisfied with an approach like buy and hold investing. With a buy and hold investment, you purchase a property, rent it out for a period of 4 to 6 years, then resell it, ideally at a profit. Through this strategy you stand to make returns on your investment both from the monthly income obtained from renters and from the eventual sale of the property. Buy and hold loans are available from a variety of lenders, and can help investors obtain the capital they need in order to secure the best investment properties. As with any other type of home purchase, competition is high for buy and hold properties, and the more you can pay in cash up front, the more likely you will be to win a bidding war.

2. Not all loans are equal

People interested in property investment often go to their banks first for a loan, only to be disappointed. Particularly if you're trying to invest in a foreclosed or rundown property, banks won't want to take the risks involved in rehab real estate investing. That's why most fix and flip investors turn to either hard money loans or private money loans in order to obtain enough funding for their projects.

Hard money loans are usually easier to obtain than private money loans, but they're also usually less reputable. If you work through a hard money lender, that person is essentially a broker connecting you to private money, so you'll end up paying higher fees and having less power to negotiate the terms of your loan.

With a private money lender, you're actually receiving funds directly from the person or organization that holds the capital. Private money lenders are therefore often choosier about who they lend to. This also means that private money lenders tend to be more invested in the success of the people that they lend to. If you make a strong return on your investment while working with a private money lender, that lender will be excited to work with you again in the future, and likely at a better rate.

3. You can go it alone, but don't

Even if you have enough cash on hand to buy an investment property outright, it almost always makes more sense to work with a lender. Yes, you'll have to pay interest on your house flipping loans, but you'll also be better protected if your investments fall through, and you'll have access to the guidance and expertise of your lender. In addition, working with a lender gives you the opportunity to do more with your own money, perhaps investing in more lucrative properties or splitting your funds among a variety of projects.