6 great funding ideas for flipping houses even with less than perfect credit

Starting a fix and flip business can be a great way to profit in real estate. It is a high-risk and high-reward venture, though.
Buying and fixing properties to sell can be an expensive and unpredictable process. There are so many costs involved for one. You need to buy the property, renovate, and get permits. Project sponsors also pay broker fees and holding costs if the property isn’t sold right away.
Getting funding is the number one obstacle for investors who are new to flipping houses. Good candidates generally have at least one successful fix and flip under their belt. They also have a credit score of at least 650 and no recent bankruptcies, foreclosures, or tax liens.
If you don’t fall into that category, that’s okay. This post covers a few ways to get funding for a fix and flip, with options for both experienced and inexperienced investors:

1. RealtyShares

Types of projects: debt and equity
Loan term: 3 – 18 months
Rate: as low as 9%
Closing time: 10 days
Loan to cost: up to 85%
RealtyShares, a leading real estate crowdfunding platform, has helped investors finance over 550 projects. Overall, the platform has raised $300 million from 92,000 registered investors. Project sponsors can get financing for their fix and flip projects in as little as 10 days and choose whether they want their financing to be debt or equity.
The online application takes minutes and project sponsors can be pre-qualified in 24 hours. For debt investments, RealtyShares looks for sponsors with a FICO credit score of at least 600, a loan to cost of less than 80%, and an estimated loan to after repair value of less than 65%. Companies in consideration go through a thorough background and credit check before being approved by RealtyShares. Approximately 5% of proposals on the platform are approved for funding.
The next step once you are pre-qualified is to submit documents for underwriting. As part of their service, RealtyShares underwrites, approves, and funds the project. Once the project is funded they manage the investor relations and payouts.
RealtyShares and other real estate crowdfunding platforms offer experienced investors the opportunity to get fast funding for their fix and flip projects. Real estate crowdfunding is possible because of the JOBS Act and is now available in most states across the US. Even so, the majority of fix and flips tend to happen in certain states, according to RealtyShares CEO, Nev Anthwal, quoted in the Attom Data Solutions September 2016 Housing News Report:
“We’re a national platform, but most of our short-term loans are in six or seven states, including California, Texas, Illinois, New Jersey and Florida.” 
This relatively new way of funding real estate investments is fast, affordable, and uses the power of the ‘crowd’. Depending on the platform, project sponsors can raise money from groups of accredited and sometimes unaccredited investors. The platforms act as mediators between sponsors and investors.

2. Hard Money or Private Loans

Types of projects: debt
Loan term: around 12 months, can occasionally extend to 2 – 5 years
Rate: around 10 – 18% with points from 2-6%, depending on the loan terms
Closing time: about a week
Loan to cost: up to 75%
Hard money and private loans are good options for investors who are new to fix and flips or who have tarnished credit. For these investors, the borrower’s credit score is less important. In these cases, collateral can be more important than a FICO score.
Some hard money lenders will provide a higher percentage of financing based on the property’s expected after repair value.
Hard money and private loans are one of the primary forms of financing for first-time fix and flips, especially since they may finance a property in bad shape that a bank would have to turn down for a loan. Hard money and private lenders are typically found online, through word of mouth, or at local real estate meetups.
Networking is important when it comes to creating relationships with hard money and private lenders because they are based on personal relationships and trust. These lenders are also taking on high stakes and they want to earn their expected return.
This is another reason why they usually want investors to put some of their own money into the deal, so that they are sharing the risk.

3. Bank Financing a Fix and Flip

Types of projects: debt
Loan term: can be longer than other funding sources
Rate: approximately 5 – 6%
Closing time: 1 – 3 months
Loan to cost: usually up to 65%
Bank financing is a good option for investors who have about 2 years of proven experience fixing and flipping properties, a great credit score (700+), and existing capital. To qualify for bank financing, investors must have a registered fix and flip business and be willing to put in a down payment.
Bank financing for a fix and flip takes longer to attain but does come with a few benefits. Rather than a lump-sum loan, bank financing usually means opening a line of credit. This is good because borrowers only pay interest on the money they spend rather than the full amount of a loan. The rates are also a lot lower compared to hard money lenders.
When looking to bank finance a fix and flip, make sure that you compare rates and terms at different banks. Going with your personal bank without considering the alternatives means you might miss out on a better deal.
Bank financing for fix and flips can be harder to find because their typically shorter terms mean that banks make less profit.
To improve your chances of fast approval, make sure that you accurately report your income, provide verified income and asset statements, employment history, and provide any other documentations that the bank requests in a timely manner.

4. Online Mortgage Lenders

Types of projects: debt
Loan term: usually longer than other options, 15 – 30 year options for investment properties
Average rate: as low as 3.96%
Closing time: as fast as 30 days
Loan to cost: n/a
Online mortgage lenders like Guaranteed Rate, Lending Tree, and Quicken Loans make it easy for fix and flip investors with a little experience get more funding for their next project.
Unlike real estate crowdfunding, this is more of a traditional mortgage that they manage online rather than a loan that a group of people invests in.
The benefit of online mortgage lenders is the way that they use technology to make the process of applying convenient and automated. For people who want to go with more experienced companies, a lot of traditional lenders are also offering online mortgage services.
Approval from online mortgage lenders takes a little bit longer than a real estate crowdfunding platform, but typically a little bit less long than a bank.
The perk to this type of funding for a fix and flip loan is the significantly lower rate. The downside is that these loans take longer to repay, although some online mortgage lenders offer shorter term options.

5. Home Equity Loan

Types of projects: debt
Loan term: typically, 5 – 15 years
Average rate: 5%
Closing time: 2 – 3 weeks
Loan to cost: n/a
Another option that is available to those looking to fund a fix and flip is a home equity loan. If you have built up equity in your home, you can essentially take out a second mortgage and make monthly payments to get the funding needed to fix and flip one or many properties.
The problem with this method is that your house becomes collateral, which means that you can lose it if you don’t make money on the fix and flip. This option is good for those with a proven track record and a solid plan but it isn’t an option that we recommend for people doing their first fix and flip.
Real estate investors can also take out equity loans on their rental properties to finance more real estate investments. These investments are long term but the rates can be low depending on the terms. A line of credit will be more affordable and more short-term than a refinance loan.

6. Friends and Family

Types of projects: debt or equity
Loan term: typically, 12 to 24 months
Average rate: 6 – 20%
Closing time: 2 – 3 weeks
Loan to cost: up to 65%
Friends and family are other last-resort sources of funding for a fix and flip. This isn’t always a good idea unless the sponsor’s friends and family understand the real estate industry and the risks involved.
Not only are you risking disappointing investors in this situation. You are also risking damaging personal relationships if the investment doesn’t work out.
One perk of this option is that the interest rates set with friends and family are generally lower than other funding options, like hard money lenders. If you do choose to go down this road, make sure that your investors understand the project and the risks. Put the deal in writing so that the terms of the loan are clear to everyone involved.

Conclusion

It is important to prepare and do some research before you seek out funding for a fix and flip. Investors should know about the local real estate market that they plan to invest in. This includes information about the neighborhood and what reliable contractors operate in the area. Lenders are looking for investors with experience and a solid plan, not just good credit.
If you are ready to start your next project, there are many funding options available. Online mortgage lenders and real estate crowdfunding platforms make it easier than ever to get funding for real estate projects. Traditional funding sources can take longer and have higher rates, but they also have benefits for some borrowers.

Greg Hammond We Buy Houses Louisville / Eagle Thirteen Properties

7 Tips to Quickly Boost Your Credit Score

 

 

       Like it or not, your credit score dictates everything from whether you’re approved for a credit card to what rate you’re offered on a mortgage.
As the economy has recovered from the Great Recession, many Americans have managed to get on better footing, but nearly one-third still have “bad” credit scores (under 600), according to credit.com. If you are one of them, it’s time to give that baby a boost. Here are seven of the fastest ways to increase your credit score.

1. Clean up your credit report

Before you do anything else, go to AnnualCreditReport.com and request a free credit report from each of the big three credit reporting companies:

• TransUnion
• Experian
• Equifax

By law, you’re entitled to one free report each year, no matter what. When you request it, be ready to print or save it to your computer.
Once you have the report, examine everything. In particular, look for any accounts that show late payments or unpaid bills. If that information is inaccurate, the report should tell you where to send a dispute.
Keeping a clean credit report isn’t only important for your credit score; it can also make or affect your job prospects. Employers do and will pull credit reports before making hiring decisions.

2. Pay down your balance

According to myFICO, the consumer division of FICO, the company that calculates one of the most widely used credit scores, 30 percent of your score is based on the amount you owe.
However, it’s not simply how much you owe that’s important. It’s how much you owe compared with how much credit you have, a ratio known as your credit utilization. For example, if you have a $10,000 credit limit and a $5,000 balance, your credit utilization is 50 percent. If you’ve maxed out that $10,000 limit, your utilization is 100 percent.
There are many theories on what is the best credit utilization level, but on its website, Experian suggests it’s best to have a rate of no more than 30 percent. In other words, you should never have more than $3,000 charged at any time if you have a $10,000 limit.
If you owe more than that amount, paying down your balances is a quick way to boost your score. Live lean for a few months, hold a garage sale or pick up a temporary second job to find the cash needed to drop your credit card balances.

3. Pay twice a month

You might think you’re doing great because you pay off your card every month, even if it’s maxed out. The problem is that your creditors are only reporting balances to the credit bureaus once a month. If you run up a big balance each month, it could look like you’re overusing your credit.
For example, assume you have a credit card with a $1,000 limit. It’s a rewards card, so you use it for everything. In fact, every month, you hit your limit. The statement arrives, you owe $1,000, and you send in a check to pay it off. The problem is the credit card company is likely reporting the statement balance each month. So it looks like you have a $1,000 limit and a $1,000 balance. That’s a 100 percent credit utilization rate, and not a good thing as far as your score is concerned.
You can help alleviate the problem by breaking up your credit card payments. Go ahead and charge everything to get the rewards, but send in payments at least twice a month to keep your running balance lower. In addition, if you make a large purchase on your card and have the cash handy, pay it off immediately.

4. Increase your credit limit

Maybe you’re not in a position to pay down your balances. You could take a different approach to improving your credit utilization rate: Call your creditor and ask for a credit limit increase.
If you’ve maxed out your $1,000 card and get a limit increase to $2,000, you’ve instantly cut your credit utilization rate in half. The key is to not spend any of your new credit. It defeats the purpose of getting a limit increase if you immediately charge the card up to $2,000.

5. Open a new account

If your current credit card issuer balks at the idea of giving you a credit increase, apply for a card from a different issuer. It will still help your credit utilization rate, since your score lumps all your open lines of credit and balances together.
An individual with $10,000 in credit and a balance of $5,000 will have a 50 percent credit utilization rate regardless of whether her or she has all those amounts on one card or spread out over multiple cards.
Be aware, though, that opening multiple accounts at once is not good either. Too many new accounts can make you look like you desperately want to go on a spending spree. Don’t risk dinging your credit score — apply for only one or two new cards if you’re going to try this strategy.
You can compare credit card deals to find the best one for you at our Solutions Center.

6. Negotiate outstanding balances

Maybe your credit score took a dive because you have bills in debt collections. You can’t wipe out past mistakes from your credit report, but you can do some damage control by settling them.
Dummies.com has a short, easy-to-understand primer on how to negotiate your debt. The most important step is to get an agreement in writing.

7. Become an authorized user

Finally, if none of the above suggestions helps you, don’t despair. There is one final option, and that is to be added as an authorized user on someone else’s credit card.
Now, for this to work, you’ll need to find someone who loves you very much and who manages his or her money very well. Once you find this very special person who is going to do you a HUGE favor, you need to cross your heart and hope to die while explaining you have no intention of using their credit card. You just want to be added to their account as a way to build credit.
You see, when you’re an authorized user, the account will show up on your credit report so long as a card has been issued in your name. Then, your credit report will show all the cardholder’s on-time payments and (hopefully great) credit utilization rate. As a result, your credit score gets a boost, too.
While these seven strategies can raise your credit score fast, keep in mind that “fast” is a relative term. You won’t see results overnight; give it three months or so for the changes to begin affecting your score positively.

Greg Hammond Eagle Thirteen Properties/We Buy Houses Louisville