Fix and Flip Loans: Best Options for New and Veteran Investors

Attom Data Solutions recently reported that the percentage of fix and flip homes purchased with some form of financing has jumped to a nine-year high this year. Currently about 36% of house flippers rely on some sort of fix and flip funding in order to purchase rehab properties and make renovations. Even experienced flippers who have plenty of capital to go it alone still choose to use financing in order to minimize their risk and put their own capital to work in other ways.

Whether you’re considering flipping a house for the first time or an industry veteran, here are four types of fix and flip loans worth considering:

1. Personal Loans

This option isn’t going to be a viable choice for everyone, but it can be a great choice if you are connected to someone with investing power. Arranging a loan from a trusted friend or family member can be a wonderful win-win situation. You get the funding you need to make a cash offer on a house and complete all of the renovations quickly. The person lending to you gets an agreed upon interest rate that beats what they’d likely make in the stock market, and their investment is backed by a property deed.

If you go this route, just be sure to write down all of the terms and sign a contract before any money changes hands. Be clear and direct with the person offering the loan, and be wary of who you choose to take a loan from. Friendship and money rarely mix well, so be sure that you and your lender are going into any arrangement with eyes wide open.

2. Joint Ventures

Similar to the personal loan, a joint venture lets you get funding from one or more friends, family members, or colleagues. The key difference is that with a joint venture, rather than you simply repaying the loan with interest, your lender gets a stake in the flip. This set up can be more mutually beneficial and less of a personal strain, so you could arrange a joint venture with a wider array of potential partners. That said, you still need to be wary with joint ventures, be incredibly clear with the terms, and write everything down.

3. Home Equity Line of Credit

If you’re a home owner, it may make sense to take out a home equity line of credit (HELOC) in order to fund your first flip. Taking out this type of loan has the benefit of a low interest rate and the flexibility to take out the money you need when you need it. Just be sure that you will be able to afford the monthly increase in your mortgage payment.

4. House Flipping Loans from Private Money Lenders

Depending upon the company, private money lenders can offer qualified flippers anywhere from a few thousand dollars to a few million dollars to complete a house flip. Private money lenders who control their own funds have the ability to underwrite their own loans. This means that they can offer more desirable loans to experienced house flippers and can craft unique loans to meet the needs of particular rehabbers.

For example, ZINC Financial recently introduced a new loan program for rehabbers focused on fast flips. The GT Program offers a rate as low as 6.99% for the first two months and 11.99% for the subsequent seven months with the option to extend the loan once by three months.

When researching private money lenders, be sure to read the fine print carefully and check references to ensure that you find a reputable lender invested in your long-term success.