Flip or flop… If every project only had two outcomes—being a good money-making flip or a money-losing flop, you wouldn’t be in the house flipping business for very long with that 50/50 split. But there’s another way that some flippers end up flopping. They’ll complete a rehabilitation, put the house up for sale and it will take longer than planned to sell, thus running up their running costs and eating into their profit before they even earn it! That’s a problem because of the holding costs and the delay in paying back loans used to finance the project. When this delay in selling prevents the flipper from acquiring the next house and starting the next rehabilitation, it is their business that is left flopping. Delays of a month or two or three in between projects can be devastating. The solution to this kind of flopping is finding the right fix-and-flip funding Philadelphia.
The bottleneck of personal capital
You’ll save on borrowing costs if you have enough personal capital to purchase your fixer-upper and fund the rehabilitation. About one-quarter of flippers do have this kind of capital, but most of them can only finance one project at a time. As we just described, this is the bottleneck that will prevent them from scaling up their business so that they can rehabilitate one house right after another. Steady work makes it easier to line up tradespeople, buy in bulk and finish jobs more quickly. Using some personal capital along with other fix-and-flip funding could resolve this bottleneck and allow them to scale up.
The hassles of bank financing
Many flippers find their banks will only offer them a conventional mortgage, requiring a 20% down payment (or higher since it’s an investment property). They have to qualify based on their credit score not based on the after repair value of their flip. The application process can take a month or two which is another bottleneck. Typically banks do not like to loan money for distressed properties, and they usually will not loan extra money to do rehabilitation work.
The risk of private money
If everything goes great, borrowing money from family members can be a win-win. But what if you run into problems and need to extend the term? What if the house is a real dog and you’re not going to make the profit you had anticipated? The risks of borrowing money from family members are real and can be very damaging to relationships.
Why a hard money loan is the best fix-and-flip funding Philadelphia
You can find a hard money lender that understands fix-and-flip funding. A hard money lender will offer you a loan product suited to your project and they want it to work well for you. If you’ve built up your business to the point that you are predictably flipping homes on time and on budget, you should be able to secure hard money fix-and-flip funding Philadelphia. As you prove yourself to a hard money lender, financing one project after another should be quite doable.
Stop flopping around on your fix-and-flip funding Philadelphia. Work with a good hard money lender and you will flip more houses and make more money.