How do you finance your first home flip?
My husband & I may be interested in house-flipping. What we cannot figure out is how seemingly young, median income folks get the financing for the first house. I assume they must get a loan from the bank for the home but what about the money to actually renovate the house? On the home-flipping shows, I've seen renovations cost anywhere from $20k-100k....that's on top of the monthly mortgage they are paying. I can understand a bank risking a loan on you if you've already successfully flipped a house before but for your first one...I just don't see any bank doing that. Please enlighten me. How do first time home-flippers get their financing?
Public Comments
- In today's lending environment, you're not going to find ANYBODY who will fund on a very high loan:value. A couple of years ago you would have.
- Great question. I bought my 1st home 4 years ago and have rented it out. It went way up in value and I used the Home Eguity to purchase the next house. That is how I did it. You could buy a house that is way below its value, get an extra construction loan from the bank showing them your plan of renovations and cost. That is how other people do it. Lastly you just have to have money to make money! Good luck. It is a lot of hard work and you should be very handy or have a contractor you trust to get the job done within the time frame and within the budget!
- get a good realtor
- Most flippers who actually make money are real estate agents or experienced home owners. Given the current state of the market, though, even they are losing money when they're unable to sell the house they've poured so much money into. Many are ending up renting the homes they can't sell. Some people finance renovations with equity from the home they live in, but that can be very risky if you get in a financial crunch. Investment properties can be leveraged if you got 'em. Have you thought about investing in a condo for rental? The rental market is strong now in most areas. And renovations in a unit are typically much more affordable than for a SFH. A condo with low fees is a must, and you could be getting positive cash-flow within a few years, while gaining equity, writing off losses (don't forget depreciation), and having the tenant pay the mortgage. Not too shabby. BTW-Sam Leccima from 'Flip This House' was a fraud. Please don't look to his show for any pointers.
- OK, I've got to put my 2 cents out there first. Because of all the TV shows about flipping, there is a higher demand for distressed properties, which is driving up the price of prospective properties. And in a soft housing market, it is harder to sell, prices are down, DOMs are up, and you may end up sitting on this for awhile. I wish I could drive you around my town and show you all the properties that people went into with the intention of flipping. They are in various states of completion and were lost to foreclosure. These people either ran out of time, money or enthusiasm for the project and lost the house. OK, now that I have put all that out there, on to financing. If you are buying a home for an investment (or flip), lenders will do this, but you are going to pay higher interest rates for this. The house is going to have to appraise for the amount you need to purchase it, and sometimes this is tough with distressed properties. Also, some lenders are going to require a home inspection and if it doesn't pass, you don't get the loan, another challenge for distressed properties. If you don't have the money to put into the house, how are you going to finance that? Some first time flippers use the equity in their own home to finance their flips, but you would have to be in your home very well to get enough money to do a flip. I wish you the best of luck and DO YOUR HOMEWORK before you embark on flipping.
