How to Get Fix and Flip Business Line of Credit?

For first-time investors, you may be wondering what your options are to get money for the acquisitions and renovations of real estate properties that you want to fix and flip.

Whether you were inspired by your favorite house flipping renovation shows or you have a general interest in this as a business, you need to know how to get the necessary funding to be successful. It’s also important to know what you’re getting into when you are looking into flipping homes.

This guide will give you a brief look at the costs associated with flipping homes, as well as the different funding options that you can choose from.

Understanding the Costs of Flipping Homes

One of the most important things to understand before anything else is what costs go into flipping homes. It can be more expensive to fix and flip a home than it can be to actually purchase a home that you are living in. When you buy a home to fix it up, you not only have to pay the renovation costs, but you also have regular monthly costs that you need to pay until the flipped house is closed. This includes the mortgage, taxes, homeowner’s insurance, and utilities. You are on the hook for all of these added expenses until you close on your house, which means the goal should be to finish the project as quickly as possible to maximize your benefits.

You also have to consider the taxes when you sell the house. If you flip the house within a year of purchasing it, this will mean that short-term capital gains taxes will apply. You can expect to pay between 10% and 37% in short-term capital gains tax, depending on where you are on the federal tax bracket. This will significantly cut your profits.

It’s important to know that it can be harder to qualify for a traditional loan when you are purchasing a house to flip rather than the one you are going to live in. This is because flipping houses can be much riskier for the lender. This is especially true when you are an inexperienced flipper. If you have a few successful flips under your belt, you will have an easier time getting these loans.

Different Loan Options to Fix and Flip a House

What are fix and flip loans? These are loans where you can buy a house for the sole purpose of fixing and flipping. When you watch home improvement shows centered around flipping, you don’t usually see the behind-the-scenes look at the teams getting these loans to fund their new business venture.

Unsecured Fix and Flip Loan

Unsecured loans are a great option for fixing and flipping homes. This is because you get fast funding and don’t have to worry about putting up collateral for the loan. You do have to remember that with this type of lending option, you will end up paying much higher interest rates than you would if you had put up collateral. The good news is that in many cases, there are unsecured fix and flip lenders that work with repeat borrowers if they were successful in flipping their homes and paying back their debt.

Hard Money Loans

Another option is a hard money loan. These types of loans are very different from traditional loans, as they require you to get money from investors or other individuals. This is a private lending option, where there is no credit check to worry about. Hard money loans are secured loans, secured by an asset. In this case, the house that you are flipping would be the asset that you use as collateral. Another great thing about this loan option is that you can get your loan a lot quicker than if you work with a traditional lender.

In some cases, this can be the only option that first-time investors have when they want to start fixing and flipping homes.  

Crowdfunding

Crowdfunding sites can help you find a loan that can work for your needs, particularly when you find crowdfunding sites that specialize in fix and flip loans. If you have been struggling to find a lender that will give you the money that you need for your fix and flip project, you may find more success with crowdfunding.

Home Equity Loans / HELOCs

You can also consider using your own home as an asset to secure a loan. Using your home for a home equity loan or HELOC (Home Equity Line of Credit) can give you the money that you need to fund renovations for your fix and flip home. As long as you have equity in the property that you are living in and meet any other requirements that the lender may have, you can qualify for these loan options.

A home equity loan offers you a lump sum that you have to pay back over time. The HELOC allows you to use it as you would any other line of credit loan. You take what you need and only pay on what you use. You can keep borrowing from this amount until you can’t anymore.

Business Line of Credit

Just like a HELOC, you could also get a business line of credit. Again, this is a type of loan where you can have a credit limit of a specific amount (much like a credit card). Then, you can borrow from this amount as needed. You only have to pay interest and fees on the money that you have used from the line of credit. You can continue to use this until you have reached the credit limit on your line of credit.

Final Words

Short-term real estate investors do have a few different options to choose from when they are looking into getting fix and flip loans. You will likely find that taking the approach of unconventional lending better suits your needs. These are all options that you can consider for your next house flipping project.