Are you ready to flip your first house but not sure how to finance it? Are you considering bringing on an equity partner but not sure if that’s the right move for you? Have you considered a hard money loan?
A hard money loan is a short-term, high-interest loan that is secured by the property you are flipping. It is often used by real estate investors to finance the purchase and renovation of a property, and it can be a great option for those looking to flip their first house.
Here are a few reasons why a hard money loan might be the right choice for you:
- Faster Approval and Funding: Hard money loans are typically easier to qualify for and can be approved and funded much faster than traditional loans. This can be especially helpful if you are working on a tight timeline to flip your house.
- Flexibility: Hard money lenders are often more flexible in their lending criteria than traditional lenders. This means that you may be able to secure a loan even if you don’t have perfect credit or a long history in real estate.
- Control: By using a hard money loan, you can retain control of your flip without having to bring on an equity partner. This means you can make all the decisions and keep all the profits (minus the loan repayment, of course).
- Lower Risk: Hard money loans are secured by the property you are flipping, which means the lender has a lower risk of default. This can make it easier for you to secure financing for your flip.
So, if you’re ready to flip your first house and want to retain control and minimize risk, a hard money loan might be the perfect choice for you. Don’t let the fear of financing hold you back from your real estate dreams. Consider a hard money loan and start flipping today!
Here’s an example of a fix-and-flip opportunity using a hard money loan versus bringing on an equity partner:
Let’s say you find a distressed property that you believe has good potential for a flip. The property is currently listed for $100,000, and you estimate that it will take $50,000 in renovations to bring it up to market value.
Option 1: Hard Money Loan
You decide to use a hard money loan to finance the purchase and renovation of the property. The loan carries an interest rate of 12% and a term of 6 months. The loan amount is $150,000, which covers the purchase price of $100,000 and the renovation costs of $50,000.
After completing the renovations, you are able to sell the property for $200,000. After paying off the hard money loan and all associated costs, your profit is $40,000.
Option 2: Equity Partner
Instead of using a hard money loan, you decide to bring on an equity partner to help finance the flip. You agree to split the profits 50/50 with your partner.
After completing the renovations, you are able to sell the property for $200,000. After paying off all associated costs, you and your partner split the remaining profit of $50,000, so each of you receives $25,000.
In this example, using a hard money loan resulted in a profit of $40,000, while bringing on an equity partner resulted in a profit of $25,000. While the overall project profit was lower with the hard money loan, you were also able to retain control of the flip and make all the decisions without having to share any of the profits with a partner and ultimately make more money.
It’s important to note that this is just one example and the specifics of your flip will likely be different. It’s always a good idea to carefully consider the terms of any loan and do your due diligence before making a decision.