Before you get into it, it’s important to understand that it takes you a lot more to flip a house than just buying and fixing it. Fixing a house to resell it and doing the same to live in it are two different stories altogether.
Let’s see how they differ and how to finance a fix and flip in Michigan:
The cost of flipping homes
The funding needs for flipping are also higher than what you’d normally incur in a regular project. You need money to become a property owner as well as the renovation funds to carry out repair work.
At the same time, you’d also need sufficient funds to cover property taxes, homeowner’s insurance, as well as the closing of the sale. You’ll also need to take any capital gain tax rates into account. This depends on the federal income tax bracket that you fall in. This 10% to 37% rate can further cut down the profit that you earn on the property.
How to finance a fix and flip?
One of the easiest ways to pay for a fix and flip is to invest your cash. However, this isn’t as easy as it sounds. Things were a lot easier for fixing and flipping back in 2005 when anyone could get a mortgage without putting anything down. Things have changed. If you’re qualifying for a conventional bank loan with a down payment, you might end up paying more than borrowing to buy a personal residence.
This primarily happens because most lenders assume that flipping is a very risky proposition. Most conventional lenders might also not want to work with an inexperienced flipper. You’d need a very successful track record and a lot of experience in the field to flipping to qualify for a conventional bank loan for this purpose. Besides, the lender might even end up charging you higher interest.
This is why we believe a hard money loan is a better idea.
Hard money loans for flipping
Hard money loans are a lot more convenient to apply and qualify for than conventional bank loans. The initial cost might be a bit higher but hard money loans are a lot more flexible and can be tailored according to your preferences. All you need is collateral to secure the loan and use it as an underlying asset.