With almost a glut of homes on the market and demand picking up again after a few years, home flipping looks like an attractive investment. It takes hard work, though, and, as any DIY enthusiast knows, houses just eat up money. But in the right market, if you plan ahead, follow through on all rehab and renovations in the right order, and stick to schedule, it is possible to make a new career of home flipping. Renovation financing is possibly one of the most important parts of the project, and you need to know about hard money options for residential and commercial property investing.
Who needs renovation financing?
Hard money rehab loans are typically used by residential investors, commercial real estate brokers and builders associations. They are quite different from the mortgage loans with which most people are familiar.
Unlike mortgage loans, renovation financing loans are processed speedily, with decisions made usually within a week to 14 days. This makes them a popular choice for renovation lending. Hard money mortgage loans usually have much shorter terms than regular mortgage loans. While mortgage loans are made for twenty or thirty years, renovation financing loans typically have to be repaid within one year. The maximum term is five years.
Hard money loans are secured
Real estate secured lending is secured typically by 30 to 50% equity on the property to be renovated. This means that there is no risk for the lender, and the borrower has no costs upfront. With secured short term loans, there is no down payment and the money is available immediately to begin the renovation.
The down side to renovation lending is that interest rates can be higher than regular mortgages. They can start at 15 or 18% or even higher. It has a lower loan to value rate.
Now for the fun part
Once you’ve secure your renovation financing, it’s time for the fun part. But before you and your crew rush in and begin tearing out walls and fixtures, it’s best to have a comprehensive plan for renovation. The best flipper homes are those that need only cosmetic upgrades, such as paint, plantings, fixtures replaced etc.
But even if the home needs to be gutted and redone, it’s best to have a plan that lets you do everything in the right order. For electrical and plumbing systems, it’s best to call in a professional. A licensed contractor knows all local codes and regulations and will make sure that they are followed.
Make it appealing
Even though rehabbing an old home can be fun, you do want to eventually sell it. You need to make sure it has curb appeal, and that the inside looks attractive enough for a family to want to call it home.
Experienced home sellers advise making the house appear attractive and comfortable without imposing too much of your own personality on it. After all, you want to give buyers enough room to imagine themselves living in it. You’re just giving them a blank canvas to plan out their future lives.
As anyone who watches home rehab shows on TV knows, flipping is not for the faint-hearted. A lot can and does go wrong. The right attitude is to be flexible yet focused on the final goal. And in the end, you will have helped some family find their dream home, and it will all have been worth the trouble.
