Fixing and flipping houses can be a lucrative and even fun thing to do, especially if you’re passionate about home improvement or enjoy working on extra projects.
However, flipping homes isn’t just a hobby—it’s also a business. In order to conduct your business, you need access to supplies and capital for improvements. If you’re low on cash, that might be difficult. Lack of funds can create a big hiccup in any project, but it can be especially harmful to a business that depends on pushing projects through to completion.
If you’re a business owner short on both cash and ideas for moving forward, then you may be in luck. There are plenty of ways to get the capital you need, whether it’s as a business or individually. Here are some ways to keep going on your fix-and-flip project when your cash flow is less than stellar.
Consider Taking Out a Small Business Loan
If your house-flipping business is registered, you may be able to get approved for a small business loan. Brick-and-mortar locations, online lenders, and even the government specialize in loans for small business owners, which can be used for home improvement.
A small business loan can benefit you in several ways. If you’re taking on a large or expensive project, you can get access to fairly high amounts of cash; business loans are typically able to finance larger projects than a personal loan. If you have excellent credit, the interest rate on your loan could be competitive as well.
The biggest drawback is that in order to qualify, you’ll need to have a registered business. That means getting organized, having your documentation in order, and paying fees to the state to get set up. Without being a registered business—even if you’re a sole proprietor—it can be difficult to get approved.
Personal Loans May Be Able to Cover Moderate-Cost Projects
If you don’t need the high-dollar amounts of a small business loan, a personal loan in your name may be a serviceable way to finance a medium-sized project.
You’ll need to consider many of the same things with a personal loan as you would a business loan—with a few major differences. They’re unsecured loans, so you won’t need to worry about collateral. Since they are unsecured, emphasis is placed on having good credit and high income when applying.
If you are highly qualified, then you could get a relatively interest rate in the single digits. Loan amounts are flexible, so you can apply for a personal loan on different projects varying in cost. Many online lenders disburse funds as soon as the next business day, which means your project stays on schedule. A common use of personal loans is home improvement, so personal loan companies are well-versed in what you’ll need and how to best help you.
Keep in mind that personal loans often come with higher interest rates than business loans. Because they’re unsecured, lenders rely heavily on credit score and proof of income during the approval process. If your credit isn’t great, you could end up paying very high rates, making that project far more expensive and cutting into your overall profits.
A Low-Cost Project Could Be Covered by a Credit Card
Certain types of credit cards may be excellent for low-cost projects. Access to a line of credit can be helpful when picking up random expenses. However, don’t just run out and apply for any credit card. There are a few cards that are better suited than others and could save money.
Here is a quick list of ideal credit card types. Each of them has its own benefits:
- Rewards that you’ll use, with a signup bonus – If your card offers cash back (even just 1.5% to 3%), you could save decent money on the total cost of a project. Additionally, some cards come with high signup bonuses (ex: $500 for spending $3,000 in three months); these can be used to get a better discount if project costs exceed that threshold.
- A low-rate introductory offer – If you can pay off your project debt within an intro-rate period, you could pay 0% interest on the project. That maximizes your profit.
- Home improvement store brand card – Store branded cards come with their own perks, such as 0% APR discounts or exclusive offers – all of which add up to savings. Just be careful that you pay off the projects within whatever introductory period is offered to avoid deferred interest.
Keep in mind that credit cards can be highly risky. They often come with higher APRs compared to loan options such as personal loans and business loans. If you go overbudget on your project, then you may be have to pay up in interest fees. Furthermore, using your card for other purchases is always a possibility, which could be disastrous if you are short on cash. Resist that temptation and use your card wisely.
Dipping into Home Equity Solutions
If you own multiple properties, a home equity loan or line of credit may be a viable solution to homeowners or multi-property owners. They are very flexible and can be used for various expenses; in fact, a common use for a home equity loan is home renovations – perfect for a fix-and-flip business.
Home equity solutions typically offer low rates and are fairly easy to get approved for if you have equity. In a relatively short timeframe, you could get access to either a line of credit or a lump sum for just about any project. In addition, they may even help you save money at tax time (but check with your tax professional). Keep in mind that home equity loans are offered upfront in lump sums. HELOCS offer access to a line of credit during a draw period, and the borrowed funds are paid back as a lump sum after the draw period.
The bad news is that in order to be eligible for a home equity loan or line of credit, you’ll need a property that has been paid off (many lenders will consider homes that are 80%-85% paid off). You also may be expected to pay some upfront fees. There may be tax benefits, but these laws may have changed. If you default on the loan or line of credit, you also put your equity at risk.
You don’t always need cash to finish a home improvement project. There are several financing options available, but each type of loan or credit card involves risk. Before you choose a product, be aware of what it will cost, how it will help the project, and how it’ll affect your credit moving forward.
At any rate, fixing and flipping houses costs money. Supplies can be expensive, but if you’re positive you can get a profit out of a project, one of these options might be just the thing to keep your project on track. Furthermore, if you pay a loan or credit card off effectively, you could improve your credit and position yourself for a rehab loan next time.
Andrew Rombach is a Content Associate for LendEDU – a website that helps consumers and small business owners with their finances. When he’s not working, you can find Andrew hiking, hanging with his cat Colby, or helping the family out with their own home projects.