Here are some numbers that will surprise you…
House flipping was at an 11-year high in 2017 (over 207,000 flips nationwide). And 35% of those flips were financed; that’s a nine-year high. The average gross flipping return on investment (ROI) last year was 49.8%, but, get this, Pennsylvania had four out of the top five cities with the highest average gross flipping ROI. Philadelphia was fourth with a 115.7% ROI.
It’s a fantastic time to be flipping houses in Philly. The biggest barrier to entry and success in house flipping is… capital. Knowing where to find the best fix and flip lenders Philadelphia will help you succeed. What are your options?
It can be hard to qualify for a business loan from a bank for fixing and flipping because flippers don’t generally collect a weekly salary nor do their businesses have stable, consistent income. For the few who are lucky to get financing from a bank, their loan product is usually not suited for a flipper who doesn’t need the long term and doesn’t want to pay a penalty for paying it off in six months. So where do flippers turn for financing?
#1. Loans from family and friends
If you have family members or friends who are genuinely interested in investing in real estate and they understand the risks of house flipping, taking a short-term loan from them at an agreed-upon interest rate (maybe 7 to 12%) could be a real win-win. Get the terms of the loan in writing—the lender should be getting a lien and you’ll want to be making interest-only payments until paying it off in full at the end of the term (3 to 12 months).
#2. Borrowing from your 401(k)
House flippers with retirement savings, either through an employer 401(k) or Solo 401(k), may be able to borrow money from their retirement account. You would have to pay interest on this loan from your savings, but since it’s your money you would be paying the interest and principal to yourself.
#3. Hard money loans
The best fix and flip lenders Philadelphia are hard money lenders because they actually offer fix and flip loans. Banks do not offer a loan product suited for flippers. Borrowing money from family or from your 401(k) can work in select scenarios or for select flippers, but doing business with a hard money in Philadelphia can set you up for your current flip and for many flips to come. Hard money lenders are typically real estate investors themselves so they understand the business and they have structured a loan product that works well for flippers: shorter terms, higher interest to cover the risk but safeguards to make sure you’re making a good real estate investment, and no penalties for prepayment, plus it’s ideal for both borrower and lender if there can be recurring loans.
Summary
It really is a fantastic time to be flipping houses in Philadelphia and getting your next loan from the best fix and flip lenders Philadelphia will help you succeed.