How to Fund Flip Properties?

Getting funding to flip properties is difficult specially when you are starting out. Not only do you need the money to purchase the property you will be flipping but you will also need money for the improvements, repairs, and renovations that need to be made along the way. When you are starting with flipping real estate there won’t be many traditional lenders that will be willing to go full out in support of your business venture.  

The best-case scenario is that you have the money to play with and assume no real risk in the house flipping process but very few people trying to get started in real estate investing have that luxury.

Banks will typically fund a portion of the flip properties if you can come up with an adequate down payment and show them a well thought out business plan. Do not rely on banks however if you have poor credit, lack a business plan, or do not have a sizable chunk of your own money to invest in the venture. 

I will not recommend you to cash out your retirement funds into property flipping business. This is not attractive for many reasons not the least of which are hefty penalties in withdrawing your money and you are risking your retirement security. It is an option however if you are in a bind to fund your flip properties. If your flip is successful it is water under the bridge, the money can be returned or reinvested and the profit from your flip real estate can then help fund subsequent flips or other types of real estate investments. 

Another option is to take out a second mortgage on your home for the funds. You must discuss this carefully with your family before deciding to pursue this option to see if they are comfortable with the risk. Again this is not the preferred method because the assumed risk is great for the security of your family. It is very important that everyone involved be aware that when you flip properties it can be a risky business. Not only is it risky because you aren’t experienced but the real estate market is fickle. Your house could sit for several months requiring costly carrying costs before it sells.

Forming a partnership is another way to share the risks and help lighten the burden when it comes to flipping houses. Keep in mind that this is a stressful business venture and should be treated as a business venture. For this reason a joint venture in a volatile or fledgling friendship may cause further problems to your relationship. If you do choose a partnership you need to carefully discuss the type of financial and labor investment that is expected of each partner and the share of profit that each partner expects to receive as well. You should also consider carefully whether you are willing to risk the friendship for the sake of profits or would you rather go with a partnership that isn’t a close friend.

A partnership works best when one party has the finances to fund flip properties and the other party the requisite time and expertise to renovate the property. Most real estate investment groups have people willing to help with the financial side and assume the risk for the lion’s share of the profits. This may be a good strategy for you when starting out even though your profits from the venture may not be very high. The knowledge and experience you will gain will be invaluable to you for your future house flips.  

You can fund a flip with no money of your own if you can get the timing right. To do this you have to first find flip properties where the vendor is prepared for a delayed settlement. Next you have to insert a clause in the agreement to gain access to the property to carry out improvements prior to settlement. This gives you time to carryout repairs before you take ownership of the property.

You will need your credit cards to not only make down payment for the property but also buy items for carrying out improvements and repairs. You have to then flip the property before it is time to pay the credit card debt. It helps if you have an end buyer in place even before you start your project. You will need to on sell the property on a contemporaneous settlement. As I said earlier timing is critical to successfully flip properties with no money down. Most importantly, you must have an exit strategy in place if things go wrong in your planning and execution of your property flip project.

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