Many people want to get into the lucrative business of house-flipping — buying a "fixer-upper" property, fixing it up, and selling it quickly. It can be a great way to set up an income for life. But, as with any business, house-flipping comes with its own challenges. One of the first obstacles new flippers face is finding a mortgage lender who will work with you.
If you've had trouble getting financing from traditional lenders, it's time to look into private money lenders. Here's what you need to know about these options.
What's the Difference With Private Lenders?
Traditional mortgage lenders have to meet many standard requirements for giving access to their company's money. You'll be judged based on standards applied to everyone, such as credit score, the current value of the property, income, and documentation. Most loans must adhere to FHA, VA, or other government regulations.
Contrasted with regular loans, private mortgage investors can be much more accommodating. That's because each lender gets to decide for themselves the parameters of loans they want to take on. They decide the level of risk they want to have, how long they want to issue a loan for, and what they consider a good investment. Private lenders often assess loan applicants on a case-by-case basis, so you have more maneuvering room to convince them to extend credit.
What are the Advantages for Flippers?
House flippers often have trouble meeting standardized rules for many reasons, including the fact that they're intentionally buying distressed homes that are currently worth little. In addition, flippers want loans for a much shorter period of time — often as little as a year. Traditional loans don't account for this, and so-called "bridge loans" between transactions are often prohibited. This leaves flippers locked out of many options, and that's where private sources come into play.
If you plan to flip homes long-term, developing a relationship with an accommodating lender can lead to a long and healthy business. Find a private investor willing to help back your first flip or two, and you'll likely have a reliable source of income for years to come. Paperwork will be reduced, closing times will be short, and interest rates will likely come down.
Where Should You Start?
As you plan for your first property flipping adventure, seek out a private money real estate lender before spending too long on traditional mortgage sources. It will help speed up the process and reduce stress. And then you can get your new business up and running.Share