Anyone in the business of property flipping knows funding is critical to any project.
And when you have scoured the listings and arrived at a property that ticks all your boxes, you need money fast.
There are many ways to secure your finance for property flipping.
They all have their benefits and drawbacks.
But for professional flippers and developers, there really is no substitute for hard money.
In the highly competitive Californian real estate market, there is no time to lose and speed is everything.
It can be the difference between securing a desired property and barely being in the race.
Here is why hard money continues to reign supreme as the best option for property flipping as well as some of the other options that are available.
Hard money
Hard money might also be known as fast money.
That’s because speed of approval is its greatest strength.
Hard money loans are often approved in as little as 48 hours.
Approval relies not on the credit history or income of the borrower but the ARV (after repair value) of the property and the borrower’s exit strategy.
But speed is not hard money’s only weapon.
Hard money also offers:
Custom terms – tailored to the borrower’s specific timeline with interest-only payments, typically between 6-18 months.
No red tape – minimal documentation, no drawn out appraisals or income statements are required.
Fixer friendly – ideal for distressed or off-market properties where traditional loans are unavailable.
Hard money loans do come with some caveats – interest rates tend to be higher than traditional loans.
They may also require a larger downpayment.
But that is the price of instant and flexible funding.
If used wisely and executed with a clear exit strategy, it is a small one to pay for a successful house flip and big pay day.
Private money
Private lenders may come in the form of family, friends or angel investors.
But they often demand equity in a project in exchange for finance rather than just interest payments.
Like hard money, funding from private lenders may be made available relatively quickly.
But the process relies on a significant level of trust as well as negotiation.
It requires the hiring of attorneys to oversee the drawing up of legal documents.
Arguably the biggest risk when family or friends are involved is the potential fracture of relationships in the event dealings turn sour.
Traditional bank loans
These loans are designed specifically for home owners and long-term investors.
As such, they require much more exhaustive and time-consuming approval processes which often take up to two months to bare fruit.
These processes include income statements, tax returns, credit checks and other appraisals.
It is difficult for the self-employed like professional house flippers to gain approval because they normally don’t have the benefit of regular pay days.
Flippers with multiple projects and debts are also spurned.
Nor are banks interested in lending money for the purchase of distressed or unconventional properties.
While rates are normally lower than hard money loans, terms generally require interest and principal repayments over much longer periods with harsh exit fees for early closure.
Personal loans and credit cards
These types of loans also tick the box for fast access to money but not much else.
They come with very high interest rates which can rise to well over 20 per cent.
Many of these loans also have a ceiling that may not be high enough to satisfy the needs of a house flipper.
They may even demand payback periods too short for some flipping projects.
If the flipping project encounters delays as is not unusual in the California real estate landscape, it may attract high penalty fees.
In some circumstances, the borrower’s own credit score and financial stability may be jeopardised.
Home equity lines of credit and cash-out refinance
Also known as HELOCs, home equity lines of credit might seem like another good alternative to accessing funding for property flipping.
However, like any traditional loan, they still require significant underwriting and documentation including further proof of income.
This can take up to four weeks for approval.
The biggest risk is that any HELOC uses your own home as collateral.
Hence, if things go bad, you could lose the roof over your head.
A cash-out refinance works similarly and also puts your home on the line.
Instead of a line of credit, it provides you with a lump sum in exchange for a bigger mortgage.
Cash
If you are in the fortunate position of having cash on hand, you have the benefit of using it as needed and without having to pay interest.
It is undeniably the fastest way to fund your property flipping project.
But there may still be a better way.
By using the power of leverage that hard money provides, you may be able to finance bigger or multiple projects.
This can substantially increase your return on investment.
Looking for creative funding solutions for your property project?
If you are serious about property flipping in California, you will soon learn that time is of the essence.
Attractive properties are quickly snapped up in California’s ultra competitive real estate environment.
That is why hard money is king.
And when you need hard money fast to finance your flipping project, there is no better place to look than Equidy.
Equidy is a hard money lender with one of the most respected and enviable reputations on the west coast.
They have an intimate knowledge of the real estate business and work overtime to provide hard money solutions for every circumstance.
They stand by their core belief that anything is possible and they are determined to prove it each and every day.
Even in tough economic times, they strive to reward entrepreneurship and always help their clients realize their wealth creation dreams.
But the benefits of working with Equidy don’t end there.
Equidy has covered all aspects of real estate and property development in California for more than 40 years.
They work creatively with their clients every step of the way, providing their wealth of knowledge and support network as their clients’ projects take shape.
Equidy enjoys long and established relationships with serious investors, sellers and real estate professionals while leveraging their reputation and trust, using clear communication to minimise the risk to all parties.
Contact Equidy today to book your free strategy call.
