The Complete Guide to Financing Your Fix and Flip
An accurate and feasible real estate investment strategy can help you make tons of money. Though real estate promises a great return on investments at the same time, it can get difficult and risky if decisions are taken haphazardly. So, if you are purchasing a property to add value then sell, you need to take the time to plan ahead by analyzing your property and calculating risk. To plan and create a fantastic real estate investment strategy, it is advisable to get the assistance of real estate finance services in the USA.
Things to Consider Before Financing your Fix and Flip
When obtaining funding for your fix and flip project, you want to be certain you obtain funding that maximizes your return. A common mistake observed amongst newer investors, is not calculating your return until you are preparing to sell your investment. Calculating your return on your investment, should occur prior to even applying for financing. Prior to obtaining financing, you should take time to review your project in full. Does the identified property have potential to increase in value post renovations and sell at a higher value? Is the targeted After Repair Value supported by comps in the immediate surrounding area? Take the time to analyze your property in full before applying for funding, this will save you headaches and potentially maximize your return.
Now that you have analyzed your project and have an understanding of your property’s potential, its now time to search for financing.
Real Estate Investment Options
It takes a heavy load on your pocket to buy a property; it is not an easy task. But there are various options available to simplify the process and provide various credit alternatives for the real estate investment.
Several primary sources are available, such as Hard Money loans, REITs, and Fractional Real Estate Investment. You can also consider investment via financial middlemen like mortgage brokers and bankers. Finally, financial companies, pension funds, and credit unions are alternatives.
Let’s take a glimpse at some options closely-
Hard Money Loans
Hard money loans are secured loans that uses the property you’re purchasing as the collateral. You typically won’t find one from your bank. Hard money loans are offered by individual investors and private companies, and provides a process that is much less rigorous than obtaining a traditional loan. When applying for a Hard Money loan, a borrower can obtain funding for both the acquisition of the property as well as funds for renovations in a matter of days as opposed to months.
Hard Money loans are one of the most common and favored real estate investment options. A Hard Money loan would allow you to secure funding for a short period of time, with the intent of renovating and then listing on the market.
Generally, a hard-money loan is a short-term loan intended to be paid back within 12 months. This is ideal for a short-term real estate investor who can quickly renovate and sell a property for a profit. It is critical to complete rehab work quickly and sell the property quickly, as each additional monthly mortgage payment means a decrease in profit. A balloon payment may be included in some hard money mortgage loans, which means that the loan principal will be due in full to the lender at the end of the loan term. If you are unable to repay the loan in full for any reason, you must refinance it or pay the penalties.
Real Estate Investment Trusts (REITs)
Real estate investment trusts work similarly to the principles of mutual funds. REITs are the securities traded on the stock exchange linked to real estate. REITs provide a good return on investments; hence these are the most lucrative real estate investment options.
One of the most distinguished advantages of REIT is that it allows investment in grade A commercial reality. Additionally, the REITs ensure liquidity to the real estate investors as an Alternate Funding Mechanism (AIF). Therefore, REITs are a more stable investment option.
Fractional Real Estate Investment
One of the most popular real estate investment options in Europe and the U.S., it is a newly emerging investment method in commercial real estate that signifies complete ownership of a single asset by various investors.
The fractional real estate investment model opens up the new provisions of investment in parts of the premium or exclusive commercial properties. Therefore, this model is slowly gaining popularity among various real estate lender .
Furthermore, it diversifies the investment portfolio as it provides investment opportunities across multiple properties.
Which Financing Option is Best for You?
There is no accurate or inaccurate answer to selecting the best financing option for real estate investment. But it would be best to consider your long-term investment goals and then select the right real estate investment strategy. Deciding the type of real estate investing is another key element to consider while choosing the favorable financing option. But, again, the right strategy depends upon you; it is up to you because specific financing options are best for different investment strategies.
Put high emphasis on thinking about why you should or why you are investing in real estate, analyze the pros and cons of each financing option, and then choose the perfect one.
Real estate investment is regarded as one of the most powerful investment types, both lucrative and risky. As a result, make wise decisions, and it does not hurt to seek the assistance of expert real estate finance services in the United States. So, choose VP Capital Lending for expert and professional real estate support.