Before recent market changes- real estate investors, primarily house flippers, were limited when it came to financing options for their investments. Because of the lucratively obvious value behind purchasing real estate, improving and reselling for a quick profit, additional lending sources have now surfaced & become willing to loan funds to be a part of the business; primarily traditional lenders and crowdfunding firms. If that’s not proof of the expanding industry’s remunerative outcomes we don’t know what is!
That being said, utilizing multiple sources for financing your next real estate investment is extremely valuable when leveraging capital for your investment.
“Jeff Pintar, founder of Pintar Investment Co. in San Juan Capistrano, CA, is one of the most active luxury flippers in the nation, according to Attom Data.
Mr. Pintar, 47, says he uses multiple sources for financing. He has established business lines of credit at local banks with about 5% interest rate that he can draw against to acquire homes. He also works with private0investment companies, which he says charge higher rates but are able to respond quickly. ‘The banks have trouble keeping up with the pace that we need,’ says Mr. Pintar.”
Mr. Pintar is just one success story associated with taking advantage of hard money lending. Most Hard Money or Private Money lenders will finance up to 60% if the estimated after-improved value of the property. This means that if a property costs $300K to purchase initially, but is estimated to value around $400K after improvements are made during the house flipping process, hard money lenders will loan up to $240K, with the investor (flipper) putting down $60K in cash.
While house flipping is becoming more popular and prevalent, luxury house flipping is more of a specialty area requiring a little more discipline because of its high risk, high return nature. If you are interested in seeing if you have what it takes to take on a luxury house flip there are a couple things to take into consideration beforehand.
Luxury House Flips require more time on average than a typical house flip. Averaging around 208 days compares to your standard 181 for regular house flipping projects. This may not seem like a substantial amount of time but it could be critical when accounting for budgeting constraints and contingencies along the way.
Luxury buyers tend to be particularly duteous when it comes to the end-product. Make sure to account for the possibility of high-end finishes and upgrades for the finished property, which may mean having to budget for a designer to help out with the final details.
Risk of Default
Because Hard Money lenders secure their private money with a mortgage on the property being flipped, you must be aware of the risk if faulting on your hard money loan- which can result in foreclosure of your property investment. Just make sure to be cautious of your project’s timeline and that of your loan!
ROBYN A. FRIEDMAN