In the past, it was extremely difficult for investors to get financing for house-flipping. However, it’s becoming increasingly easier to get the money to make these profitable investments.
Both small-scale or luxury home-flips can be incredibly lucrative. Daren Blomquist, senior vice president of Attom Data Solutions, an Irvine, California-based real-estate data provider said that investing in luxury homes can be a double-edged sword:
“With one flip, you could make the same amount that you could with 10 deals of a lower-end property. But you’re putting many more eggs in one basket and counting on that one property to deliver.”
The Wall Street Journal reports, “Many small-scale home flippers still rely on so-called hard-money loans—short-term, high-interest loans provided by private investors.”
Why should a house-flipper opt for a hard money loan instead of getting their mortgage from a bank? Realtor.com answers this question, “Because hard money loans are generally less of a hassle. The flip side? You can borrow the money for only a short period of time—and at a much higher interest rate.”
These short-term, high-interest-rate loans are popular among house-flippers, investors, builders, and people with bad credit.
Hard money loan terms are usually much shorter; from six months to one year is most common, but sometimes they can go up to five years. Of course, interest rates are considerably higher, usually ranging from 12% to 21%.
Getting a hard money loan allows investors to skip all of the qualifying procedures which are required by big banks. Investors can usually get a hard money loan much faster. In many cases, it could take as little as one week.