You’ve bought a property on Hubzu that you want to flip and sell for a profit, but now you’re running low on cash and can’t afford all of the renovations you had originally planned on making. Whether that’s due to a budget miscalculation or some unexpected financial curveballs, we’re here to tell you that there’s still hope. That’s right, here are four ways you can flip a foreclosure property, or any property, without cash.
If you’re low on cash, asking a private investor to invest in your project is a great option. A private investor can be a business partner, an industry professional, colleague or someone you already know personally, like a friend, relative or neighbor. People in your network may be willing to invest in your fix-and-flip because there’s already trust and credibility established. They’ll also walk away with a return on their investment without having to do any of the legwork. The return and responsibility divide depends on your specific terms and agreement.
If you have a network of industry professionals, a partnership with another real estate professional can also be mutually beneficial. In addition to funding, by serving as your private investor, they can also offer their expertise and network of real estate professionals, like contractors.
When selecting an investor for your project, the first qualification is somewhat obvious—it should be someone who has enough cash to loan you. There should also be a mutual understanding of the process, each person’s roles and responsibilities, the scope of work involved as well as the time and money required. Once those are decided, be sure to have a formal contract or agreement in place to avoid any confusion or disagreements down the line
HARD MONEY LOANS
Another option for fixer-uppers is to take advantage of hard money loans to fund their flip. In order to qualify for a hard money loan, you will have to meet certain qualifications, like having prior experience and a proven track record. As with conventional loans, there will be an associated interest rate, and utilizing a down payment (of about 20%) can help secure the loan. If a down payment doesn’t seem feasible, you may be able to use equity from another property in lieu of the down payment.
Keep in mind that these short-term loans aren’t traditional—they’re known for quick pre-approvals, fast closings and possibly high closing costs. While they can be difficult to find, if you’re able to catch one, the process should be brief and will allow you to get started on renovations right away. As investors are able to take advantage of existing properties and previous experience, this is a great option for experienced investors with a proven portfolio.
If you’re searching for investors outside of your existing network, getting involved with local investment groups can also be advantageous. Investment groups bring together investors and professionals in the real estate industry, including the hard money lenders we just mentioned. Getting involved can provide unmatched networking opportunities that can help you collaborate with investors, contractors and other professionals for your fix-and-flip projects. There may be a membership, association or attendance fee associated, but it can be well worth it to find the right partners. To get started, search for local investment groups in your area.
If you already own another property, even if it’s the home you reside in, you can use your existing equity to help finance this flip. In order to do so, you would have to refinance the home to cash out the equity you’ve acquired. Depending on the amount and how you choose to utilize it, you can use the money to fund the flip or use it as a down payment for a hard loan.
Another option is a home equity line of credit (HELOC) which functions similarly to a credit card and allows investors to borrow against their equity. In order to pay back the credit, borrowers are required to make monthly payments. Therefore, it’s important to keep your fix-and-flip timeline in mind—the longer your project takes, the longer you will be responsible for these payments. Added bonus: the interest on a HELOC can be tax-deductible.
Work with your lender to determine your likelihood of getting approved for these options. Usually, it will come down to how much equity you’ve already built up.
If you find yourself in a fix-and-flip project but don’t have enough cash for the updates and renovations, the good news is, there are numerous ways to acquire funding. Whether you opt for a lender (private or hard money) or decide to utilize your own assets and equity, there’s no reason not to go through with the project.
With these options available, there’s no better time for a new flipping project. Start by finding the right property.
The content of this article is not intended to be financial advice. Please consult a financial professional.