As a real estate investor, you know the most valuable asset you have is capital. In this article we will cover how to get funding for your real estate fix and flips. If you are a long-term investor that values a monthly residual income from rental properties this article will also be very valuable to building your real estate portfolio.
First Let's discuss the different options you may have based on your selected method of investing.
Rental Income Strategy
From elite investors to small time investors, The rental income strategy has long been favored for building wealth. Compared to a fix and flip strategy this method is great for slowly building up your portfolio. The one downside to this strategy is that it can take a significant amount of time to build a best egg. This is why so many investors opt for the fix and flip strategy when they are initially building up capital to do bigger and more long term investing.
Funding Long-term Real Estate Purchases
When you are looking to invest in a long-term rental property the funding options you have may be very limited. Due to the stringent guidelines for approval, many investors are not able to meet the down payment requirement of 20% (on average) for a rental income property. This leaves and investor with limited options when funding a deal. An equity partner who pitches in for a deal might be a viable option when it comes to purchasing a rental property.
Hard money lenders are also another source to secure funding for your deals but often times also require a large down payment to secure. Most hard money lenders will lend up to 70% LTV (Loan to Value) on a property if you have no track record to successful real estate flips or investments. Hard money lenders can offer a short term solution for acquiring a property, but the terms are usually shorter and have higher interest rates which can significantly reduce your bottom line.
Fix and Flip Strategy
Many of the investors we work with at Trustart Financial deploy this strategy. Since investors like to avoid unfavorable rates when they can, this initial strategy is based on acquiring a property below market value and forcing appreciation through renovations. The Fix and Flip Strategy can be a great way to build up the initial capital you need for a down payment for rental properties.
Now... how do fund these types of deals?
Many of our investors secure funding through Trustart because of the lenient guidelines needed for approval. When it comes to purchasing a fix and flip property without a track record or a large amount of capital, Investors are left with few options.
Unsecured Corporate Credit:
- Up to 150k in Funding
- 0% interest for 6 to 18 months
- Revolving line of credit
- Business reporting (Builds business credit and separates utilization and debt to income off personal credit profile)
- 7-10 business days for funding
Unsecured Term Loan:
- Up to 300k in funding
- Liquid cash loan
- 5 to 7 year terms
- No prepayment penalties
- 3.9% to 12% interest
- Builds personal credit profile
These programs are great for funding the initial purchase of the property and rehab costs. Many of our investors use the Unsecured Term Loan program to purchase a property and then use the Corporate Credit to fund the rehab costs.
This article outlines the many options you have when it comes to funding your real estate investments. Remeber that you should have a solid plan in place before making an investment decisions.