Using cash to purchase properties is typically in your best interests, no matter how long it takes to earn the necessary funding and save money. With that being said, there are still some additional methods that can be used to advantage
3 Foolproof Methods For Funding Your First Flip
1. Friends and Loved Ones
Family and friends may be willing to assist you. Ask your parents, siblings, extended family members, close friends, or anyone within your circle of influence. These folks will trust you when you are a beginner who is just starting out. The likelihood of receiving a loan for your initial flip is fairly high, especially if you offer up a nice profit split.
A word of caution: borrowing money from a family member can lead to an embarrassing loss. Are you prepared to spend years paying them back? Borrowing funding from a family member on a first deal that does not generate any revenue will lead into a world of hurt that could take quite some time to dig out from. Another word to the wise: If you begin to do well after borrowing money from friends and loved ones, everyone will want to be your new best pal.
2. Hard Money Lenders
Working with hard money lenders is not always easy and most will try to avoid working with them now by taking the time to accumulate their own capital. Being the master of your own fate is preferable. Who doesn’t like to call their own shots and move in the manner that they desire?
However, hard money lenders can assist when needed. A track record is required, so asking for money when an awesome deal comes your way is not always realistic. Historical stats must be provided. This includes your past transactions, the number of properties that have been bought, the number that have been flipped, and the profit margins on each.
The world owes you nothing, so get rid of any entitlement you may feel. A proven track record is needed before you’ll be considered trustworthy. Once you have done a ton of deals, the climate will shift and funding comes easy.
Hard money lenders may still be willing to roll the dice on a deal that is being presented, even if your track record is not proven. You’ll need to find a great deal, negotiate hard, and be sure that the property can be obtained on the cheap.
People buy into one another all the time. If you present yourself as being likable, more people are inclined to roll the dice on you. First impressions are everything so bear this in mind when meeting with a hard money lender.
3. Your Own Capital
Using your own capital is always wise. Even if you have to work around the clock at multiple jobs, eat Ramen noodles every day, sleep on friends’ couches in lieu of paying rent and catch buses to work, saving your own money is the best possible choice to make. Many property flippers who are looking to fund their first flip will work as laborers for years, in hopes of raising the necessary monies on their own.
Don’t let the glamorous backstories fool you. Some of the most prominent house flippers in the industry got their start by scrimping and saving all of their pennies, so that they could fund their own purchases. By working hard, remaining frugal and saving your own revenues, utilizing your own cash to purchase an initial property is easier than you may think.
There are some important factors to bear in mind here. Contacting your parents and asking for the money may be easier but this is not money that you are actually taking the time to work for. If you decide that you are going to contact a hard money lender to sell them on the deal, these are still not funds that you have earned on your own.
Those who are willing to spend years working for the capital on their own are going to experience a greater level of success for one key reason: it is money that they have more of a personal attachment to. You are always going to more cautious about the deals that are made when you are spending money that has been accrued over the course of time.
It’s worth the while to check the time value of money using the proper calculations, such as Discounted Cash flow , Net present value and Internal rate of return. Or use a real estate analysis tool that calculates these for you automatically.