Considering an OJR House Flip? Consider How to Get the Funds

Investing in real estate is popular.  People have moved away from wanting to invest in rental properties in favor of buying a house for cheap then sell it for a profit.  Even though many people have found this OJR house flip strategy to be a lucrative way to gain a profit in the real estate market it can be hard to get that first investment property.  To flip OJR houses, an investor needs to have access to capital and luckily there are many to choose from.

Hard Money Loan

A hard money loan is usually used by someone that has bought and sold a few OJR homes already.  With this type of loan the house that is being bought will be the collateral for the loan. While the interest rates are aggressive and there is a need for a high down payment, people with low credit scores are typically not turned away.

When getting a hard money loan the borrower is not approaching a bank.  They are going to borrow from a private lender or lenders. With it being a private loan they want at least twenty-five percent down on the home or more.  Plus, they will charge interest rates ranging from ten to over twenty percent.

Cash Out Refinancing

Cash out refinancing can be helpful to someone who still owes on another mortgage but still wants to invest.  This refinancing process will cost the homeowner in closing fees as they are changing the terms of their mortgage.  They may also end up with a different interest rate and pay more overall than they would have without refinancing.

Cash out refinancing is using the equity in the OJR home to borrow additional money.  This equity is cashed out and added to the loan so the homeowner can use that money on an investment. When considering this route, a homeowner needs to have a higher credit score of at least 640.  They must also have a debt to income ratio that is lower than forty-five percent with at least thirty percent equity in their home for a lender to consider a cash out refinance.

Home Equity

There are two options when it comes to using home equity to fund an OJR house flip investment: a home equity loan or a home equity line of credit.  With either option, a homeowner can use up to eighty percent of their home’s equity to fund a second mortgage while using the primary residence as collateral.  

A home equity loan will give the homeowner the money all at once while a line of credit is like using a credit card that is tied to the home.  If buying another property for an OJR house flip it is usually better to go with a home equity loan. There will be a fixed interest rate and a homeowner can claim a tax deduction on some of the interest that is paid.  

Acquisition Line of Credit

An experienced house flipper can get an investment line of credit which is an acquisition line of credit.  This line of credit is much like a home equity line of credit. However, it can only be used to invest in another property.  Usually, this line of credit can only be used for up to two years and will have interest rates that range from five to ten percent.

The lender that will provide this option will look at the other houses that the investor has bought and sold.  If there is little history or they have had trouble making profits the lender will not approve them to get an acquisition line of credit. Those that can prove they are a good investment can get a lender to approve their line of credit in less than a month.

Crowdfunding

The last option for an investor is to use with an OJR house flip is crowdfunding.  Crowdfunding is a concept that there is not a lot of information about in terms of investments.  

However, there are many people who do use crowdfunding to invest.  An investor will receive their loan from a group of people who are providing the loan with interest rates varying from eight to twelve percent.

Most of these loans will last up to a year.  The people that crowdfund will be making small contributions to the loan because there are so many people that are investing in the same project.  They may be only providing a few thousand dollars at a time.

When considering an OJR house flip, the investor will need to consider the access to capital. Factoring in the above routes can help an investor decide on the correct – and most profitable – path to pursue.