The real estate industry offers several revenue pathways you can follow to achieve your passive income dreams. Among the most common travel paths is the house flipping business. Flipping houses can be a perfect business idea, especially if you love cleaning and decorating old stuff, restoring it to perfect usable conditions.
However, acquiring and renovating old houses isn’t always cheap. At one point in the journey, you may need a financial boost to keep your business hopes alive. Below, we’ll look at four effective ways you can finance a house flipping business, whether it’s during the start of your business or mid-journey when financial challenges set in.
Hard Money Loans
If you’re looking for fast funding solutions that won’t dig deep into your long credit history, then hard money loans are a great option to consider. The loans are offered based on the property value rather than your personal credit score. You can get approved within a few days to a couple of weeks depending on the institution you’re working with.
To get the best services, you should start by searching for reputable loans like Pacific Northwest Capital acquisition loans that have a good track record of financing different acquisitions. The main downside of hard money loans is their high interest rates that can range between 9% and 20%. You’ll also be using the property being flipped as collateral, putting all your investment at risk in case you fail to pay.
Personal Loans
A personal loan can offer a quick funding option for smaller house flipping projects that require a little financial boosting. Unlike taking a business loan that requires a lot of paperwork, personal loans can get you the funding faster even if you already have a business account you could secure a loan with.
However, while they’re easy to secure, personal loans come with moderate to high interest rates and shorter repayment periods, typically between one to five years. You’ll also need a high credit score of at least 660 to qualify for a personal loan.
Home Equity Line of Credit (HELOC)
A HELOC loan is a financing solution available for homeowners who want to take a loan against their home’s equity. This means you get financed based on the value of the home you want to flip, minus the amount you owe on the mortgage. If you have at least 20% equity in your home, you can borrow upwards of 85% of the home’s equity.
The approval process for HELOC loans can take a few weeks to months, depending on the lender, making them a less ideal option when financing is needed quickly. You’ll also need a credit score of at least 660 to qualify for a HELOC loan.
Seller Financing
With the help of a binding contract, seller financing can be a great way to acquire and sell property without going through the traditional mortgage. As the buyer, you’ll pay directly to the seller following an agreed schedule and price. The price always factors in some interest, which in most cases is cheaper than what you’d be charged in traditional mortgage. Since there’s no traditional lenders in-between, seller financing always results in faster closing, making it a great option for quicker financing deals.
These four financing solutions can help kick-start or boost your house flipping business and give you the success you need to stabilize your business finances. The right financing solution will mostly depend on time limitations and the size of the business you’re running.
