You may have seen a few shows on cable about house flips, or perhaps read a couple of articles about how an ordinary person made some good bucks by flipping houses. If you are interested in getting into house flipping but have no money to spend on it, private money lenders will help ease the process for you.
But first, let’s talk about what house flipping is. In simple terms, this is when a real estate investor purchases a property, renovates it, and sells it for a good profit. The idea behind this is to accomplish the whole project in as quick a time as possible, so as not to devalue the property. There are many skills required to do a successful house flip:
- An eye for potential: A rejected or abandoned piece of property with little market value could be seen as something profitable after it has been filled.
- The proper sense of timing: Being able to read market trends, know what competitors are doing, and striking a deal not too late and not too soon.
- A good network of industry professionals: Because turnaround times are quick, a good house flipper will be able to source the best of the best who can offer services at the right price.
With all that being said, there are many expenses to be made during the course of flipping the property, from damage repairs, utilities, interiors, and marketing. Being able to find the right property, knowing the right timing, and having a good network will be worthless if one does not have the money to pay for the project.
Loaning from banks is not always the best idea for atypical projects like house flips. Banks and other financial institutions take time in the approval process, require good credit standing from the borrower, and tend to have very stringent measures for releasing loans.
Where time is of the essence, a private money lender can, in simple terms, act as the house flipper’s bank without all the excess formalities. They can release the funding for house flippers within a few weeks or even days. They offer flexible payment terms and don’t require excellent credit scores from the borrower—provided, of course, that the borrower can show proof of the ability to pay back the loans.
Although their interest rates are higher than financial institutions, private money lenders compensate this for the speed and assurance of releasing the money within the time period that the house flipper needs it. In order for the agreement to be legitimate and secure, the lender and the borrower can have a promissory note and trust of deed on the property.
Private money lenders are also localised, which means they have an awareness of the market value of properties, competitive rates, and will likely have knowledge of the industry. With direct interactions between the lender and the borrower, they can establish a good partnership, which will help a lot in the negotiation process.
With private money lenders, house flippers will find the process of transforming a piece of property to be more enjoyable. Of course, becoming a house flipper is not the easiest in the world—there are risks involved and anything happens—but the reward of seeing a finished house selling for a great value to a new homeowner is priceless.
