The Secret to Financing Your Flips

Secret #1: Professional Real Estate Investors Capitalize on Leverage 


What does this even mean? Leverage can be defined as the use of credit or borrowed capital to increase the earning potential. In plain speak, it means using Other People’s Money (also referred to as OPM) to make a profit for yourself


Most Popular Forms of OPM

​​Hard Money 

I know "hard money" makes it sound like Vito will take you out at the kneecaps if you don't repay your loan, but it's not like that at all. 😁 A hard money lender is typically just a company that specializes in lending money to real estate investors.

These loans are typically asset-based. Meaning, the property must qualify for financing, and not necessarily the individual.

Your credit is usually not even checked. Standard terms I can easily find in my area are as follows:  100% financing of purchase + renovations up to 70% of the ARV (After Repair Value - or what the house will be worth once renovated), 2-3 points charged at funding, and 8-15% interest. 

Most flippers start with using hard money as their main source of funding, until they feel more confident in their abilities and move toward using more private money sources.

I sometimes use hard money for the purchase and repairs, and others times use hard money for the purchase and private money for the repairs. And still other times I'll use all private money. It really just depends on the deal. Just know that you have options and can be creative. 

***Be sure to grab my 21 Smart Questions You Must Ask Hard Money Lenders in the sidebar or further into the article. 


Private Money

Individual who lends money. These can be friends, colleagues, family members, and so on. The terms of each loan are negotiable, which can lead to some savings on points and interest. Private lenders can be a great resource!


Crowdfunding

If you want to take advantage of your great credit but need a faster loan than a traditional lender can accommodate, crowdfunding may be a solid option.

. . . were you expecting more secrets?

Then I have bad news for you, because that is THE “Secret” that is so closely guarded.

Working with hard money and private money lenders is common knowledge amongst real estate investors, so it’s pretty silly that some “coaches” make you pay a ridiculous amount of money for this information. As if the financing piece is the only thing newbies need help navigating!

Any time you are vetting lenders, please use common sense. Just as you wouldn't fall for the Nigerian prince sending you money via email, do NOT fall for some random "lender" requesting money be sent directly to them.

When it comes to lenders, all monies should ALWAYS be exchanged through a title/escrow company. 

Always always always do your own thorough due diligence on a prospective lender, just as you would on any house you buy!

How Should You Vet Hard Money Lenders?

  • Research them on the internet. They should have a strong, professional web presence. 
  • Talk to people who have used them.
  • Reach out to and directly ask them questions. (They all tend to use certain terms interchangeably. So, in order to get a VERY clear picture of closing & holding costs, as well as property criteria they look for when lending, you MUST ask specific questions.) This is a relationship business, so build this relationship!
  • Not sure what questions to ask? Don’t you worry, I’m sharing that with you, too. Yep! No more getting stuck at figuring out the financing piece. 

Resources for You

Hard & Private Money Lenders

(This is not an endorsement for any of these. I’ve gathered these names from students, colleagues and other investors over the years. Please always do your own due diligence.)

Large Directories

(Hundreds of lenders who have already been vetted by the following organizations)

1. AAPLonline.com (American Association of Private Lenders)

2. PrivateLenderLink.com 

Do NOT pay the coaches/gurus/real estate companies out there for access to their lender networks "competing" for your business.

It's superfluous

Crowdfunding

NOTE: There are hundreds of real estate crowdfunding sites. The ones listed below happen to be the best rated at the time of this publication (April 2019). 

Additional Ways to Find Fix & Flip Lenders

Go to your favorite search engine, and enter “fix and flip lenders your state” or “hard money lenders your state”. Remember to do your due diligence and never ever send someone money! All funds exchanged should go through an escrow or title company, and settled at the closing of your purchase.

Ask your real estate agent.

Ask other investors in your area. 

Ask real estate wholesalers in your area. (Great resource because they want you to get financing to purchase their deals!)

Grab the below super helpful freebie!

Minimize Your Risk

  • You don't want to screw up 
  • You don't want to lose money
  • You don't want to make costly mistakes 
  • You don't want to look like a fool

There are so many ways to minimize your risks when it comes to flipping houses. One of the best ways is by leveraging other people's money. 

This does not give you free rein to make rash, poorly thought-out decisions, though. 

When anyone, an individual or a company, entrusts you with their money, you need to act as if it is yours. 

As you prepare to find and complete your first flip, remember that the whole point is to do your first flip in a way that makes you want to do a second flip, then a third, and so on. But you have to actually DO A FLIP.

Flip smart out there.

Over to You

I hope this post answers most of your hard money lender questions! The financing can be one of the simplest pieces, and one of the things newbies find the most challenging before we start working together. If you have any questions let me know by scrolling down and leaving a comment!

Debbie DeBerry | The Flipstress

I've been in real estate in Austin, TX since 2003, involved in 500+ transactions, from traditional brokerage to rentals to flips, and everything in between.


I am The House Flipping Coach for Women, and teach you how to start and grow your house flipping business, the smart way. 

So that you can contribute to your family.

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