Call it what you want but flipping houses has become Popular with a capital P in recent years. I speculate that the success of books such as Rich Dad, Poor Dad, by Robert Kiyosaki and TV shows such as Flip This House have brought fourth public knowledge on the merits of house flipping. Regardless of how house flipping became popular, it’s in and it’s here to stay!

So How Does House flipping work?

Well, on pen and paper it’s really straight forward, you buy a house for cheap, you fix up the house and you sell it for more than what you paid for. Easy as pie right? Ummm . . . kind of right.

House flipping only works if you have the start up capital (money) to buy the house and then are able to sell it quickly for profit. Unfortunately, most people aren’t sitting on several hundred thousand dollars and banks generally don’t approve short term loans. So what’s an entrepreneurial house flipper such as yourself to do when you can’t turn to banks for loans? You should look into hard money loans.

What’s a Hard Money Loan?

So what exactly is a hard money loan? Glad you asked. A hard money loan is essentially a loan that that you take out from a hard money lender so you can purchase (in this case) a house to flip. These loans are easier to obtain than securing a loan from a bank and usually come with a high interest rate.

What’s a Hard Money Lender?

A hard money lender is a person or service that borrows money from private investors that they pay an interest rate to, and then they take that same money and lend it to you, only this time they charge you a much higher interest rate then what they are currently paying.

Essentially, I want you to think of hard money lenders as a middle man that provides you access to money that you can use in order to flip houses.

Why Can’t I Borrow Money From a Bank?

Although it is possible to receive a short-term loan from a bank, you will find that it difficult to have these types of loans approved. Banks make their money off of the interest rate that they charge you. A short-term loan will never generate as much money to a bank as long-term loan will, which is why they’re difficult to obtain.

What are the Benefits of Using a Hard Money Loan?

So why exactly would anyone take out a loan with a high interest rate? The answer is that hard money loans are easier to be approved for than bank loans. Additionally, hard money loans are quicker to obtain than bank loans. Quickness is a very important factor for house flipping. The sooner you can spot a good deal, the sooner can act on it! A hard money loan allows you take advantage of good deals before your competition does. Speed kills in jungle as well as in the real estate arena.  If you are successful in your house flipping endeavors then you’ll be able to pay off your loan, and limit the interest payments, quickly.

How Can I Get A Loan?

If you’re ready to take the next steps, what you need to do is search for hard money lenders in your area, reach out to them and provide them with your financial documents. Typically, they’ll look at your pay stubs, your credit ratings and tax records. If everything checks out, they’ll require you to put money down and you’ll be on your way to flipping house.

How Does this All Fit?

People use hard money loans to raise the money that they need to buy and flip a house. If you’re interested in flipping houses but need the start up capital to put plans into action, you now have the knowledge to look into using a hard money lender to get the ball rolling. Have fun flipping houses and remember to seize the day!