Flipping houses is at its highest level since 2006, says a Trulia study. Part of the hype comes from house flipping TV shows that make the work appear attractive. Even the celebrities are doing it! People want to give the experience a try and see what type of money they can make. Flipping houses is also a job that can be done on the side. For people looking for extra cash, house flipping can be a lucrative side business.
Most people who go into the fix and flip business need financing. Once they close on a few properties and start making a profit, they may not need to depend on loans as much. But what is it that makes hard money loans so popular? Why are these loans favorable to traditional loans?
There’s Plenty to Gain from Hard Money Loans
Below are some of the reasons why fix and flip loans have become the preferred option for house flippers.
Flexibility. Hard money loans are funded by private investors. Loans from conventional lenders are funded by banks and credit unions. Fix and flip loans generally have higher interest rates compared to bank loans, but this is offset by the short holding process. It’s also possible to work out the finer details with the lender.
Fast Approvals. The house flipping market is competitive. To see a return on investment, you must act fast and choose the right properties. Conventional loans are slow, taking 30+ days to complete. Imagine the number of properties you could miss out on! Hard money loans have a fast turnaround time, usually 7 to 14 days.
Easy Application. Forget the long, tedious applications that the banks have you fill out. Private lenders care more about the property you are buying rather than your credit score. The application process is fast and streamlined, and you only work with the individual lender, not an entire processing team.
Fewer Stipulations. If you don’t have a good credit score but want to dabble in the fix and flip industry, it’s possible with a hard money loan. Conventional lenders expect near-perfect credit scores. Private money comes with far less hoops to jump through, allowing you to start your house flipping experience right away.
Hard money loans are not recommended for longer term investments, but they do make sense for short term flips and rehabs. You can usually request up to 100% of your purchase price, though you’ll need to back up the loan with real assets. If you can buy a property, fix it and flip it for a profit, you will have the money to pay back the loan and possibly enough to put down on another property.