House Flipping Financing

In today’s real estate market, flipping homes is a great business model. With the glut of foreclosures on the market, there is inventory available to enable even novices to enter the business and be profitable (if they do their homework).

Novices, however, typically are in need of house flipping financing in the form of acquisition and rehab loans. This type of financing can be difficult to find, but it is available.

The place to look is with hard money lenders. Most banks are going to require much more cash into the deal than hard money lenders will, and banks are becoming more and more reluctant to finance these types of transactions.

Working with a hard money lender for your house flipping financing can help leverage the cash available and take advantage of the market. You can typically expect to pay anywhere from 5-10 points or more on this type of money, as well as pay between 12% and 14% in interest.

While that may sound expensive, with the proper deals it does allow you to be profitable, and is much less expensive than bringing in a partner.

Most of these programs work in a manner where the amount of house flipping financing is based on an after repair value, or ARV. It is common to be able to finance between 50-65% of the ARV. It is important that you do have cash available, as you will typically need to show a vested interest in the project.

One of the most liberal house flipping financing programs available in California allows for 100% financing of the acquisition, with the borrower bringing cash in to cover the points, fees and rehab work. Often times the investor or hard money lender will also want 3-6 months of prepaid interest.

As a ballpark number, with 20-25% of the purchase price available in cash, a borrower can obtain house flipping financing. Once the deal is structured, all funds for the rehab will be included, and if interest is prepaid, there will be a period of time where no out of pocket costs are incurred.

Putting a 6 month interest reserve into the loan allows for the time to acquire the property, rehab it and get it back on the market. If done properly, many flips can be back on the market in 45-90 days. By hitting this target, it is possible to have the property sold before the first out of pocket interest payment is due.

For more information and examples of this type of house flipping financing, here is a great resource about rehab loans.

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