Are you looking to cash in on the current low interest rates on mortgages by investing in a property to flip, but suffering from a severe lack of cash? Provided that you have a solid business plan for the investment, a lack of cash doesn’t have to stop you from investing. There are a few ways you can raise capital for investment purposes—you just need to ensure that you factor the repayments into your plans so that you don’t run into trouble.
If you are looking to invest in a second property, you can leverage the capital in your existing property in order to take out a loan on a new one. There are a couple of ways that you can do this:
- Cash out refinance. This essentially means redoing your existing mortgage, and pocketing the difference. There are no restrictions on what you may do with this money, so you could use it as a down payment on the second property you want.
- Home equity line of credit (HELOC). This operates in a similar way to credit cards, allowing you to borrow the money for the down payment and pay it back monthly. The payments are often tax deductible as an added bonus.
For both of these options the more equity you have in your existing property, the more likely you are to be approved. You should consider how much equity you want to leave in your existing property, and ensure that you aren’t borrowing so much that you are putting your home at risk.
If you have the right level of income and your expenditure rates aren’t too high, you could approach your bank for a loan in order to pay for the down payment on an investment property.
If you shop around you can get a good interest rate on personal loans, and they will generally be repaid over a fixed-term period so you can budget to pay back a monthly amount that you can afford.
Hard Money Loan
If you don’t have an existing property that you can leverage, and your income isn’t high enough to qualify for a personal loan, then you could look into fix & flip loans.
These loans are provided by companies specializing in this type of real estate investment. It is easier to be approved for a hard money fix and flip loan than it is for a personal loan; however, the interest rates are often a little higher. That being said, the repayment period is often much shorter as the loans are designed for short-term real estate projects; so although the interest rate is higher, it might be that you actually end up paying less interest. It’s always worth doing the calculations for your specific project.
Partner With A House-Flipping Investor
If you have no capital but you can offer value to a house-flipping project in other ways (for example, you can do some of the building work or you have a lot of contacts in the construction industry), then you could potentially fund your project by partnering with a house-flipping investor. This way would mean that you lower the level of risk, but that you are also splitting your profit with a partner. Dependent on how much the work on the property will cost, it could still work out to be the most lucrative option.
Crowdfunding for real estate projects can be a great way to raise capital without having to go through a bank.
Essentially, you create a proposal that is posted onto a crowdfunding platform, and then if people like your idea they will invest. You would then pay out a share of the profits when the project is complete.
The key with crowdfunding is to make your project more attractive than all of the others, usually by getting your audience to relate to you as a person in your pitch. Video is a great tool for this, as is a well-researched and well-thought-out pitch.