House Flipping & Interest Rates

interest rates

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House flipping can be an extremely lucrative business for those who invest the time and work into the properties correctly. On the flip side, it can also have a significant financial risk, even more so for beginners.

Most beginners who enter the house-flipping business do not have the cash at hand for the property and will need to look into other financing options. Lenders often see flipping as risky and generally won’t work with an inexperienced flipper. In addition, as interest rates in mortgages have been rising, it’s essential to do the research before jumping into a loan option to ensure you get the best rate and can make a good ROI. Let’s examine what options are available to fund your house flip

Loan Options and Interest Rates for House Flipping

  1. Hard Money Loans – These are a common type of loan used in house flipping. A hard money loan is a unique type of loan in which funds are secured by real property instead of the borrower’s creditworthiness. These are sometimes easier to qualify for as your credit is not a major factor and approval time is typically faster. The downside of hard money loans is that the interest rates may be much higher than traditional loans.
  2. Traditional Mortgage Loans – There are a few different types of traditional loans that may be worth considering. Renovation loans are there if you are planning to do renovations to the home (which if you are flipping the house you are looking to do this). There is specific criteria for this loan and if decide to live in the house after renovations you will need to convert the loan. Another common option is a cash-out refinance. 
  3. Private Lenders – This is a great option for those who already have relationships with banks. With private lenders, terms are usually a bit more flexible and you can shop around until you find an option that suits you best. With private lenders, however, interest rates may change so be sure to do your research
  4. Crowd Funding – This option allows a person to raise money from a large number of people who each contribute a relatively small amount, typically via the internet. These are popular options for those in real estate because you can contribute as little as $50,000 but hidden fees are important to be aware of. 

Bottom Line

The option you choose for your first house flip will vary depending on your circumstances. What worked for others may not work best for you. Regardless of the option, you decide to move forward with always be sure to do your research before purchasing a home to ensure you are investing in the right property and don’t make common mistakes that could have been avoided. All of this will benefit you in the long run and allow you to run a successful house-flipping venture.