What House Flipping Investors Should You Choose? 

Entering the world of house flipping without proper financing is almost suicidal. The purchase prices are over the roof, not even discussing all the renovation and carrying costs after you buy the property. 

That’s why you need an investor with a deep pocket to help you close the deal. But what type of financing should you choose? 

Today, you’ll find out all the details about house flipping investors and what type of financing you must choose, depending on your circumstances. 

Why Do You Need an Investor? 

The house flipping business, just like any branch of the real estate market, requires a lot of liquidity to enter. The most basic home in the cheapest state will cost you around $130,000, which is much money for someone who’s just started doing business. 

Also, even if you have the cash upfront, you should understand that in most cases, it’s better to buy a more expensive property, as the profit margin will be higher due to various factors. 

As such, finding an investor with a deep pocket can significantly increase the chances of a successful flip, giving you the freedom to choose the right materials, invest in an advantageous design, or even do some land shaft design.  

What Types of House Flipping Investors Are There? 

Before choosing an investor for your house flips, you should understand what type of real estate investors are there. Here are the five most popular real estate investing entities you can find on the market right now: 

Hard Money Lenders

Hard money lenders are the most common lenders used by house flipping businesses. Typically, they provide short-term loans or investments based on the property’s value rather than the borrower’s ability to return the credit in time. Why? 

These entities use the property as collateral, meaning they can’t lose much money if your deal goes out. 

Hard money lenders usually impose high interest rates, ranging from 10% to 18%. They also have fast approvals, sometimes as little as 24 hours, making them a popular source of investment for novice house flippers. 

Private Money Lenders

These lenders, often sole individuals or small groups of like-minded investors, constitute a significant portion of the real estate market.

Private lenders usually give out loans with interest rates ranging from 10% to 20%, depending on the project’s viability and your business plan. 

Unlike institutional lenders, private money lenders often focus more on analyzing the person’s business plan and the accounting behind the deal rather than credit history and various background checks. 

This makes them a highly flexible source of investment for flipping houses without any credit history. 

Banks and Traditional Mortgage Lenders

Compared to a hard money lender, banks and traditional mortgage lenders offer stability and a degree of financial security regarding a house flip. Usually, these types of investments come with an interest rate of about 6%, making them highly profitable in the long term. 

Conversely, receiving money from a bank is significantly harder, as you’ll go through a rigorous credit assessment process, numerous background checks, and other processes that will make the approval time longer.

On average, the strict criteria lead to a rejection rate of around 10% for house flipping applications.  

Home Equity Line of Credit 

A Home Equity Line of Credit (HELOC) is a highly popular source of financing for those house flippers who can put an existing property as equity. You can benefit from its highly flexible design, drawing funds as needed and being backed by your house. 

The interest rate for HELOCs can get up to 7% annually, making them cost-effective and highly efficient in the long run. 

Of course, there’s a huge risk coming for every house flipper that chose this type of investment: losing the property they put as collateral.  

Crowdfunding Platforms

This is a revolutionizing type of house flipping investment, democratizing and decentralizing the source of funding that a house flipper gets. 

Unlike traditional hard money loans or investment mortgages, crowdfunding platforms offer diverse funding structures, from debt to equity investments. On top of that, they can help the real estate investor with advice but require full transparency in return. 

What House Flipping Investor Should You Choose and Why? 

The most important part about flipping houses is to find the right investor for your deal. The funding source is like a double-edged sword: it can either kill you or make you extremely rich. Let’s see in what cases you should choose one or another source of investment. 

Hard Money Lenders

It’s your first house flip but not your first real estate deal. You have extensive experience as a real estate agent or private investor, but you want to try something new, or you have spotted an interesting opportunity to flip houses in your area. 

If you’re that guy, a hard money loan is the best deal you can get. It’s fast, inexpensive, and can cover all the renovation costs and property taxes for you to close the deal for good. 

Pros

• Faster and less stringent approval process
• Secured by the asset you’ll invest the money in
• Acceptable interest rates in the short run

Cons 

• Less flexible in terms of terms renegotiations 

Private Money Lenders

If you’re a complete newbie to this industry, a private money loan is the best you’ve got. You can get money from your parents, your good friends or some rich relatives you have. It will make you feel safer about the money, and you’ll get advice from them. 

All you have to do is develop a great real estate investment strategy to start getting the money. 

Pros

• Are highly flexible and can be renegotiated often
• Big private lenders offer personalized services 
• Fast funding – get your money in less than 48 hours

Cons

• Higher interest rates compared to traditional loans

Banks and Traditional Mortgage Lenders 

Do you want to flip a $3,000,000 house? In that case, you should go to a bank or a traditional mortgage lender, as only they have enough liquidity to finance such a big deal. However, you won’t get the money easily.

Even if you get over the background checks and have a good credit score, you still must present a detailed business plan describing how and where you will spend the bank’s money.

If you don’t have enough experience with house flips or real estate listings, you can skip this investor. 

Pros

• You can invest in big commercial properties 
• It’s not a huge financial risk for your company
• It can bring in significant profit if played right

Cons

• You’ll have to gather the cash for a down payment

Home Equity Line of Credit 

This one is a little risky, which is why you must only choose it to fund projects you are 100% sure will be profitable. A HELOC is a type of loan that uses your primary reticence as a source of funding, meaning that you can lose your house if you don’t pay the rates. 

If you have enough experience in the field coupled with some research and a thorough business plan that shows you’ll be profitable, you can use this investment type. If not, be prepared to lose the house you live in. 

Pros

• You can significantly raise your credit score
• It can be used for a tax deduction for the interest paid
• It has lower interest rates compared to private and hard money loans

Cons

• You can lose the collateral if you use it for a risky deal

Crowdfunding Platforms

Newbies can use this type of investment without experience in the real estate market because they won’t be forced to work alone, and they won’t have such strict legal responsibilities. 

If you get your funding through a crowdfunding platform, you’ll have access to thousands of people who donated money. You can ask for advice, compute the purchase price together, and even involve some of them in the process. 

Pros

• The responsibility is lower compared to other sources of financing
• You have access to the knowledge of thousands of people who invested
• You can take the decisions together, diminishing the stress on you

Cons

• Sometimes, you won’t be able to raise the amount of money you truly need

How to Attract the Attention of the Investor?

If you found the perfect investor for your situation but don’t know how to get his money, follow these simple but important steps: 

Build a Business Plan

Having a detailed business plan can significantly increase your chances of getting the financing you need. If every investor had given their money to every businessman seeking funding, there would be no millionaires in the U.S. 

Every investor, especially those investing in real estate, is greedy. You won’t get a dime if you can’t convince them that you’ll double their money. The easiest way to convince them you’re worth investing in is with a business plan. 

Show him everything: where you’ll buy the materials, what market research you’ve done, the carrying costs of the property, and much more. 

Pro Tip: Seek investment from real estate guys. Even if you don’t get the money, they might advise you on your business plan. Use it. 

Research the Investor

Every investor has their style. Some are searching for deals with low profit margins but 100% guaranteed. Others try to hit the jackpot and invest in risky but highly profitable endeavors. 

If you know who to approach and at what stage of your career, it won’t be hard to get the investment you need for another house flipping deal. 

You can also look at the history of their investments and bet on those lenders that have had great success with house flippers. On a psychological level, they will attribute the success of the investment to the industry, not the person behind the deal. 

Personal Brand and Networking

Invest in your network and personal brand. Go to that really expensive party. Take a couple of photos for your LinkedIn or Instagram. The more people will know you, the more opportunities to raise money you’ll have. 

Also, it would be great if you could make yourself visible to the investors you seek funding from. Even some small talk at a party or a couple of messages on Instagram will help you close the deal faster. 

Some investors won’t give you money if they don’t know you personally. That’s why you should give them the feeling of being around at every party or every event you can attend. 

Prepare Some Cash

If you’re not new to the business and have closed some good deals, you must have a couple thousand dollars in your savings account. Use them to lure a potential private lender or big institutional investor into another house flip.

You can tell them they won’t be the only ones financing the deal and that you’re putting your finances on the line. This will give them a boost of confidence about the deal. However, use this tactic only if you’re 100% sure about the profitability of the investment property.

You should also prepare some liquidity to take the money from a bank or a traditional lender. They will want a down payment of 5%-10%, which means you’ll have to pay the cash upfront.

Frequently Asked Questions

Wrapping Up

Finding the best house flipping investors to get your deal done can be frustrating sometimes. You need to know where to look for them and what types of loans they can provide. 

On top of that, you must be aware of how to approach them to maximize the chance of getting the money you need. 

Fortunately, all this information and more house flipping tricks can be found in this article! If you liked it, remember to comment describing your first flip. Also, if the information is useful, share it with your friends!