Where Do You Get Your Seed Money?
May 15, 2018 / Fix and Flip
If you’re ready to get into the fix and flip world, you’re going to need some money (unless you’re doing the bird dog approach). If you don’t have a nest egg you’re willing to invest, there are a few different options. The one you go with depends on how much money you have for your down payment and what kind of financial risk you’re willing to take.
Hard Money Lenders
Hard money lenders usually require that you have a down payment of at least ten percent. These private investors often have higher interest rates than more conventional loans, but the loan duration is generally shorter. If you know you can get the property fixed up and flip it within a pretty short time period, this may be your best option.
The Federal Housing Administration also offers loans to those who qualify. However, in order to take advantage of their low down payment (three to five percent), you do have to make the home your primary residence. If you’re willing to sell your current home and live in a property for a few years before flipping it, this might be an option for you.
If you’re a veteran, you likely qualify for a VA loan. There’s no down payment, but again, the home must be your primary residence.
Finding Your Down Payment
If it’s your first fix and flip, you may not have the cash on hand to make a down payment. While you might be able to get an FHA or VA loan, if you don’t want to live on the property, those options are out. So, what can you do?
You may be able to borrow from your retirement fund or from a whole life insurance policy. You could also ask your family or even close friends if they would be willing to loan you some startup capital. Just be aware that borrowing money from family can lead to some uncomfortable holiday gatherings if you’re unable to pay them back.