Financing flips is in no way similar to financing a primary residence. These loans are for the short term, as no one in the flipping business plans to hold onto their property for the standard 15-30 year period. They are also expensive, and interest charged usually amounts to the double digits.
Considering the expense and the short-term nature of these loans you want to ensure that:
1. Your property can sell quickly
2. That you take out the smallest loan possible.
• The HGTV’er: This flipper purchases a property that is pretty much livable, a fresh paint job and some new carpets and it would be a quick and easy sale. But the smiling heads of the property brothers float into her mind, “take out this wall, make it nice and open concept.” She takes out a rather large loan to reconfigure the homes entire layout. After the walls come down and the dust settles our flipper discovers that her extensive demolition didn’t add much to the value after all. All that unnecessary work took time, a time during which she was paying those double-digit interest rates and this cost her several thousand dollars.
• The Designer: Our next flipper is obsessed with clean, minimal interiors and slick German appliances. Her vision for her flip is taken straight out of a Mies Van Der Rohe picture book, and again she takes out a rather large loan to bring her vision into reality. In the end, the sparse, minimal interior, Italian concrete countertops, and full picture windows didn’t contribute much to the homes final sale price. Her property sits idly on the listings for many months because her vision didn’t match the expectations of most buyers. While her house sits on the market, she continues to make those hefty interest payments on her larger than necessary loan.
• Consider the minimum amount of renovation needed to bring the property to a marketable standard. The HGTV’er didn’t do this, and thus she took out a loan that was larger than necessary.
• Only add features that add real value. The designer might have remodeled the home in a way that was aesthetically pleasing but not only was her vision expensive; it also didn’t mesh with the expectations of most buyers. She took out a larger than necessary loan but also the features she added hindered her ability to resell and therefore pay off that loan.
If you don’t employ these tactics, you could end up taking out an unnecessarily large and expensive loan to finance your next flipping project.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.