Investors looking to finance their fix and flip properties can have a difficult time going through traditional banks. Their restrictions on loans have been tightened significantly for investors, and for many of us, that route is just not an option.
As many a successful flipper has discovered, there are other ways to find the needed capital for a fix and flip project. Looking outside of traditional channels can be a smart move, and technology is helping to create more approaches to financing than we’ve ever had before.
Hard Money Lending
One alternative that’s been around for a while is hard money lending. This approach provides a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private individuals or small companies.
So the loan is based not on your credit score, but on the value of the property you’re buying. These loans can charge rates that are twice those of regular mortgages, but they are quicker to secure, require less red tape than traditional bank loans, and can often be secured for 100 percent of the purchase price.
Alternative Funding
A source of financing that’s fairly new to the scene and rapidly gaining popularity is known as crowdsourcing, or peer-to-peer (P2P) lending. Increasingly, large pools of investors are given the opportunity to be part of real estate investment, with a low minimum investment. So a loan for $400,000 might involve investments from 40 –or 400 –investors.
Real estate crowdfunding caters to investors of all types -commercial, retail, residential –and include existing properties as well as development projects. Some platforms are especially set up to accommodate the fix and flip investor. Patch of Land, for example, helped generate over $61 million last year for those projects, and they save everyone time by qualifying investors and evaluating properties in advance. The platform even prefunds their projects, freeing the borrower to get right to work while the site’s users sign to purchase their share.
With access to this sort of capital, and platforms that can fund projects in a matter of days, many investors are beginning to favor this alternative to the traditional bank. There are others, but by comparison they are piecemeal approaches.
Friends and Family
For example, it may be possible to borrow the money from friends or family. Some people approach the family doctor or some other individual with cash to invest. This can work well in some cases, but the possible snags are obvious. Aside from possible damage to relationships should something go wrong, approaching people to ask for funds is very time-consuming. You may not get a “yes” right away.
The best-case scenario for the friends and family approach is to establish a partnership with someone who is interested in being involved with projects going forward and has the money to invest. Whether you find that person by knocking on doors or through a crowdfunding site, the end result is basically the same.
If you're interesting in rehabbing a property and are in need of financing, let Patch of Land be your partner for your next project! For more information, look through the steps on how to get started or download a FREE copy of our Borrower Handbook.
Johnny McCarron commented February 24, 2017
I like that you talked about the different forms of funding when you are trying to invest in real estate. I think that people often don't consider that their can be multiple ways to invest. However, if you plan properly, you will likely be able to be confident in your investment. Do you have any other real estate investing advice?