You can quickly turn your house flipping hobby into a business. If you’re unsure of where to start, you’ll need various funding avenues to assist you in your venture. Take advantage of the best ways to finance your house flipping business in 2021.
What Is House Flipping?
House flipping is the act of purchasing a low-value home or “fixer-upper,” performing upgrades or repairs, and selling it for profit. If you enjoy working with your hands, this career path is an excellent choice as you get to meet new people and essentially build their homes while making a profit. But how do you make a profit in house flipping?
How Can You Make a Profit In House Flipping?
It may seem counterproductive to purchase something only to sell it later. But in this field, the saying “spend money to make money” rings true.
To profit in the house flipping business, you must understand how to search for undervalued homes and purchase them at a below-market price. This allows you to finance more money towards your flipping process, producing a higher profit when you’re ready to sell. It may take some time to see a return on your profit, so be sure to take your time and be patient.
That said, you can also choose to expedite the buy, renovate, or sell process by doing what many call micro flipping. This course involves buying a property that doesn’t require many repairs and performing limited renovations to sell to another buyer quickly. Many people in the house flipping business will take this route if they’re looking for a quick profit turnaround or cannot make major home renovations.
Family and Friends
Start with your family and friends. You may start by posting on social media that you’re looking to start your house flipping business and may need funding to get started. Make sure you give your loved ones an option to invest instead of directly asking them for money.
Remember that you aren’t looking for a handout; instead, you’re offering your loved ones to invest in you. Be sure to inform them that you’re going to pay them back in the future. Not many people are willing to share their hard-earned money without a guaranteed return.
Hard Money Loan
This type of loan is unique compared to its counter loans because they’re traditionally connected with companies specializing in lending. Hard money flip loans are most known to offer short-term loans for real estate partners. The typical loan term is approximately six months to two years.
401(K)
Since the 401(K) is your own money, you can withdraw it for your business. This “loan” is typically tax-free, but you must check with your employer to confirm this. Many 401(K) accounts allow you to take out about 50%. Although the loan charges interest, you’re essentially paying interest towards your account.
Ensure that you analyze that state of your 401(K) to determine if this is the right choice for your business.
Personal Loan
To fund your house flipping business, you can take the traditional route of acquiring a personal loan to assist in your financial request. There are many personal loans to choose from, including the most common:
- Unsecured
- Secured
- Fixed-rate
- Variable-rate
- Co-sign
Unsecured Loan
An unsecured loan may charge a slightly higher interest rate than other personal loans. This is due to the lack of collateral to support the loan, such as a home or vehicle.
Secured Loan
A secured loan is considered less risky for lenders because the borrower takes the loan out against their mortgage or other loans. However, keep in mind that they can seize collateral assets if the funding is not returned to the lender.
Fixed-Rate
This type of personal loan offers interests rates that remain consistent throughout the borrowing window. This makes payments easier to budget when building your business.
Variable-Rate
Variable rates are loans that change interest rates depending on bank fluctuation. This type of loan is considered risky because of the constant varying changes in interest rates. However, if you’re looking for a short-term loan, this may be the correct route for you.
Co-Sign
This type of personal loan may be best paired with a person you can trust. If you have a lower credit score or a short credit history, a co-signer with a more substantial credit score can help you get the loan for your business.
Financing Partner
Although loans can assist you in your funding requests, they aren’t the only financing options you have. If you’re hoping to start your house flipping business without utilizing out-of-pocket funding, try partnering with a house flipping investor.
However, professional partnerships operate in the same way classroom groups work—you must do your part and bring value to the relationship. The investor is helping you start your business, so be sure to prove to them that you’re worth investing in.
Crowdfunding
Similar to receiving funding from your family and friends, you can also request funding online through crowdfunding platforms like GoFundMe and Indiegogo. These sites may be a quick option to receive funding for your business.
When creating your page, be honest about your intentions and give people a reason to invest in your business. Following your page, you’ll be able to share your funding request across your social media profiles and manage your payments.
Wholesale Funding
Wholesale funding may be a great option if you’re looking to earn a profit in a short amount of time. The process mainly includes finding properties, putting them under contracts, and flipping the contract to a new buyer.
You can succeed in this option if you understand how to analyze the market and negotiate contracts. This financing option is also an efficient way to network with other house flipping investors.
Seller Financing
Seller financing enables you to communicate directly with the former homeowners. You have two options when seller financing: perform research in the housing market and find a property that allows seller financing, or interest other sellers with this financing option.
This funding route gives you the flexibility to negotiate loan terms that best match your house flipping goals. Be sure to be transparent about your plans to show other investors that you’re trustworthy.
When it comes to funding any business, there are many routes one can take; the above options are the best ways to finance your house flipping business in 2021. Be sure to do your homework, stay on top of market trends, and read the fine print.
