How To Flip Houses | 5 Ways To Fund Your Project

Welcome back to the channel. In today's video, I'm going to show you 5 ways you can fund your next flipping project. Coming up. If you're wondering how to finance a house flip, you're not alone. Buying, renovating, and quickly flipping properties for a profit can be a highly lucrative venture. Yet finding a loan for your next flip project can be difficult if you don't know where to look or if you're just starting out. Today, I'm going to go over 5 options that you can take to fund your next flip. We'll go over the pros and cons of each, and I'll even show you a way to fund the deals without using any of your money. Real quick, before we start, I just wanted to introduce myself. My name is Joe. I've been a broker, investor, and mentor for over 40 years. I wanted to use my experience and this channel to help new and experienced investors, those who want to create the life they've always wanted through real estate. Make sure that you never miss a video by subscribing and hitting that little bell icon. Hard money loans are short-term loans that are sometimes intended for real estate investments. Unlike traditional bank loans, these are issued by private lenders. A hard money lender can be an individual A group of investors or a licensed mortgage broker pooling funds together to lend. One of the pros to doing hard money loans is that lenders are easy to work with. You are really not qualifying for the property like a traditional mortgage. The property itself is qualifying. Most hard money lenders don't even run your credit. They're looking for how much experience you have, how much, skin is in the game, so to speak, and how much a loan-to-value of that property at the end of the day after you rehab it is. So they're very, very easy to work with. One of the cons of hard money loans is the interest rates— interest rates and really the points. So interest rates I'm not really too concerned with because I'm only borrowing this money for a short period of time. So if it's a 10% interest rate, which is kind of average, that I'm only paying 10% for 2 to 3 months at the most. This is where they get you the points. So the points are a dollar amount that you pay just for the privilege of buying— I'm sorry, just for the privilege of financing the property. So if you're financing $500,000 and they're charging you 2 points, you're already paying $10,000 up front just for the privilege of getting this loan. And just a quick tip, when you're dealing with hard money lenders, you will get your best rate and terms after 10 deals. They will ask you, they will ask you to verify those deals. Usually closed deals off the MLS is what they're looking for. The second way we're going to be talking about is a cash-out refi. If the value of your primary residence has increased to the point that you have enough equity, you can do a cash-out refi. This lets you tap into the equity that you have in your current home and lets you refinance it so that you have cash at the end of the day to go out and invest with. Some of the pros, you will be getting a better interest rate because it is part of a standard loan program. The cons are kind of the same. You have traditional qualification rules, okay, in that The lender is now qualifying you in particular, that you have a great job, that you have income, that you have money in the bank, etc. All those things that they ask you for in a traditional loan, they're going to ask you in a cash-out refi. And then the tip, you will have to pay closing costs. Okay. And that's normal in a refi. Stick around because I'm going to show you how to fund your own flip. without using any of your own money. Next, we're going to be talking about home equity line of credit, or as it's known, a HELOC. If you've built equity in your home, you can tap into that by using a home equity loan or home equity line of credit. Both financing options let you use the equity in your home as collateral. Home equity loans provide you cash up front And then you pay monthly payments on that loan. I think one of the biggest pros of a home equity line of credit, if you use it correctly, is the ability to draw the money in and out. So use it on one project, make sure you put it back in. Use it on another project, make sure the money goes back in. Cons? Same. It's easy access. So sometimes people aren't financially savvy to deal with this money, and it's such easy way to pull it out that, hey, I want to buy a motorcycle. Hey, I want to go on a vacation. Hey, I want to do this. They pull it out. They don't use it for the financial part of the transaction. They use it for personal stuff. So that's a big con. And then last tip. 10 years ago when we had the last downturn, a little bit 10 plus, everybody was using their house like an ATM machine. So they were getting home equity line of credits, they were pulling the money out, they were spending it as they wished. And then the, the bottom burst of the real estate industry and they could not pay this money back and they were foreclosed on. So please Try to avoid this tip. If you've got cash on hand, that's probably going to be the easiest and best way to fund your next deal. Assuming you're able to buy low and sell high, you can take your returns and duplicate that and buy another property after. So we're talking about cash. Pros, obviously you are the boss of your own money, so it's easy to decide whether you're going to put this money into the project or not. You don't have to answer to anybody, a lender, a partner, anybody else involved with the transaction because you are the boss. Cons, money does run out unless you're, you know, extremely rich. It does run out. So big con. Tip. So I like to use this word churn and churn basically means that if I have my money out, I'm finishing up that project, maybe buying something in the meantime. So I've got 2 or 3 projects going on at the same time. As this project gets done and sold, I'm taking that money and not letting it sit in the bank, but I am putting it into another project. So the money is literally going in and out all the time of my bank in the projects themselves. The last thing we're going to talk about is private money. This is the best way to fund your project without actually using any of your money. Oftentimes this means borrowing money from a family member, a friend, a colleague who has disposable money available to loan. Could also be a member of your community who makes it their business to lend their money to real estate investors. Ask around your network. You might be surprised who's willing to lend you money On your next project. Number 5, private money. The pros: family and friends. Okay, easy access to money because these are the people that actually know you, know what you can do, and are willing to give you the funds to do the deal. Cons: loss of that family money. Big con there. Okay. They trust you up here and They know that you're going to take care of the money, but something happens along the way. Okay. Big tip. I would create a contract, even with your own family. Make sure that everybody's on the same page. A contract will do that for you in case something does happen. You can rely back on the contract on who's responsible for what. Pulling cash out of your own pocket might be a great idea if you don't want to end up with a lot of debt. But many house flippers can't afford the renovation without asking for some sort of financial assistance, especially when it comes time to scale your business. As you're trying to decide how to finance each project, you have to consider all the short-term and long-term options available to you. Feel free to reach out to me anytime with any questions that you have. If you're just starting out, and you want to see a flip that we're in the middle of right now, just click on this video right here. I do a full walkthrough and show you how to add the most value for your next project. There are even some tips on how to deal with an absentee contractor. You won't want to miss this one.