Getting into the home-flipping industry isn’t as easy to do as it may seem. In order to be able to flip a home, you first need to be able to buy it. Getting financing from a traditional lender often takes a lot of time, which can mean that the property sells before you are able to even get financing to buy it. Fortunately, there is another lending option available. Hard money loans are loans with quick approval and that can be obtained using the property you plan to buy as collateral. The following guide walks you through a few tips to use when you want to use hard money loans to get your flipping business off the ground.
You Need to Have an Estimate for the Flipping Costs
When you go to apply for a hard money loan, it’s best to have an estimate for what the actual cost of the flip will be. This shows the lender that you have a plan in mind, know what the costs will be and that it will be a profitable investment for them to make. Hard money loans are often riskier for lenders because they don’t require an overly high credit score or a huge down payment for loan approval.
Hard Money Lenders Often Need to See the Property
Before you can be approved for a hard money loan, it’s common for a lender to send an agent to look at the property in person. The agent determines if the investment is worth making by looking at the condition of the property, the plans you have for it and the real estate market as a whole in the area. If the property is located in a part of town where the properties sit for an extended period of time without selling, the lender may be leerier about approving your loan.
Hard Money Loans Can Get the Ball Rolling Quickly
When you flip a home, the sooner you can start working on the remodeling the better. Approval for a hard money loan can take as little as a few days, whereas approval for a traditional loan can take quite a few weeks or even months. Being able to get the money you need for the home as quickly as you can better your chances of actually being able to get it.
Hard Money Loans Designed to be Paid off Quickly
Typically, flippers get hard money loans because they know that they are going to repay them quickly. They plan to buy the home, flip it and make a huge profit. The money they get from the sale goes directly to pay off the loan that then any money left over serves as their profits. Knowing that you are paying a slightly higher interest rate than you would if you had a traditional loan can sometimes light a fire in you that makes you work harder and faster. This ensures that you are able to make as much profit as possible because you are paying the least amount in interest payments as you can.
Getting Future Loans Will be Easier
When you work with hard money lenders and prove that you will pay off the loan quickly, it makes it easier to get a loan with them in the future. Being able to show that you are responsible and diligent proves that you aren’t as much of a risk as some other borrowers and can make it much easier for you to get another loan in the future. This is ideal when flipping houses because you want to go through as little hassle as possible when it comes to getting financing for the loans as you can.
In 2018, home ownership dropped to 64.2%, meaning that home buying is at an all-time low. First time flippers make the mistake of buying a home without taking the neighborhood into consideration. This could be a huge problem according to property expert Egypt Sherrod. “I think it’s a mistake to buy and try to flip a property in a troubled neighborhood where every other home on the street is in disrepair,”. It’s important to make sure not only the house, but the neighborhood is appealing to potential buyers in the current buyer’s market. To better your chances of approval of a hard loan, have detailed examples of what you plan to do to make the house unique and the positive aspects of the neighborhood and surrounding areas. Getting a hard money loan may be easier than a traditional loan, but proper preparation is key.
U.S. Census Bureau, Current Population Survey/Housing Vacancy Survey, April 25, 2019. https://www.census.gov/housing/hvs/files/currenthvspress.pdf
Gray, Liz. Flipping a House? 5 Dos and Don’ts You Need to Know First. https://www.hgtv.com/shows/flipping-virgins/house-flipping-dos-donts-from-egypt-sherrod