Flipping homes has become a popular endeavor for many, and it’s also a very popular subject for reality-esque shows on channels like HGTV. If you’re looking to get into flipping houses on your own, you’re going to need to have your eye on fix and flip loans.

How is a Fix and Flip Loan Different?

As a flipper, not only are you dealing with purchasing a home (coming up with the downpayment just like you would for your own residential property) and the surrounding costs (potential HOA fees, insurance, etc), but also the cost of materials to flip the property and also Realtor costs and closing fees. As a flipper, though, you’re seen by lending institutions as a real estate investor, not so much a home-buyer. It’s also unlikely that a lending institution will see you as a “small business.”

What Do I Do?

Many house flippers get creative, particularly for their first few flips. Some will turn to family members for loans or even look at their home equity for extra money to start flipping. If you are interested in looking at your equity for this purpose, you will need to have at least 20%, generally speaking.

One of the first things that you should do when trying to find fix and flip loans is create a solid business plan. Having one not only will make you look more credible to potential lenders, but it will also help you accurately estimate how much your project will cost. Just like personal home renovations can end up being far more expensive than anticipated, flipping an entire house can end up this way, too.

There are several ways that you can get money for fix and flip loans.

  • If you are connected, try and find a business partner that has access to capital;
  • If you have a reasonable amount in your 401k, this can also be a great source of cash for flips, but it is not recommended to do this if you are close to retirement age;
  • Owner financing can also be an option if you find a fixer-upper, particularly if it’s been on the market for a while. Owner financing is where the owner essentially pays for the flip, and the flipper gives the owner the original price that they were looking for and skims the profit from the top.

No matter how you finance it, flipping is a time consuming but potentially rewarding endeavor. A solid business plan will make it happen.

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