One of the biggest mistakes you can make when starting a fix and flip project is to start it without enough money on hand. A lot of people who start these projects without enough money think that the process will take several months so the money is bound to show up from somewhere later on.
The problem: this almost never happens. Flipping houses is a very profitable, but it’s also very high risk. You don’t want to start a project and risk having it stall out halfway through for lack of financing.
In a best case scenario, you could eventually find financing and finish construction, but lose thousands of dollars in profits on interest payments. In a worst case scenario, you could never find enough financing to finish construction and lose the property along with all the time and money you put into it.
Start Off With A Hard Money Loan
If you have some cash on hand to start a project, but not enough to see it through, a hard money loan is a good option to get you more than you need to get you through the project. NLDS Corp. offers hard money loans for up to 70% of cost of buying and rehabilitating the property.
Even if you have more than 30% of the funds necessary to finish the project, it may be a good idea to borrow as much as you can. Why?
- A lot of unexpected things can come up during a rehabilitation project. You might find that certain parts of the home are no longer up to code and need more work than you thought. You might find that the market for certain materials you were planning on using has gone up, leaving you with a higher materials bill. Whatever the reason, it’s always good to have some extra money on hand to make sure that unexpected expenses don’t leave you high and dry.
- If you run out of money during the middle of a project, it can be extremely difficult to get another lender to step in and give you a loan. Hard money loans for rehabilitation projects are risky loans and most lenders will not be willing to lend you money in a second lien position behind another lender.
- There may be a stigma attached to a stalled rehabilitation project that will make it difficult for you to sell the property even if you do manage to find enough money to finish the project.
- Hard money loans are short term loans that you pay back once you flip the house anyway. If you complete your project on time and on budget, you could always just pay back the excess you borrowed after you sell the property.