Buying real estate without equity, is that even possible? As far as financing is concerned, there are various options. In any case, it is recommended to use equity capital for financing. Without such a basis, the construction becomes very difficult and complicated. But how much equity do you need and does it make more sense to finance through a bank or an investor? In this article, you will learn everything essential about these and other points.

What are the financing options?

Let’s assume that you renovate a house with your own money and take a certain amount in your hands. The purchase already costs something and the renovation, for example, 10,000 dollars. Beautified, you can of course resell the object for a much higher amount.

But what possibilities are there to finance these projects?

It is very simple when there is no financial institution involved. In this way, real estate can be bought and resold quickly. In addition to this option, there is also the co-investment. Because many wealthy people are looking for a good investment. These potential investors are interested, but usually do not have the time to familiarize themselves with the concept of fix and flip.

Therefore, they give you this opportunity and the money to supplement the object. The classic financing is that through the bank. Especially for newcomers, this type of financing is rather difficult, as the bank does not lightly finance fix and flip. This is because, as a newcomer, you do not yet have any proof that the strategy works for you at all.

It is possible to negotiate a loan that can be used flexibly. The disadvantage: This is associated with higher interest rates. Only a flexible interest rate, which may be slightly higher, will help.

How much equity do you need?

If you finance through the bank (fix and flip lenders california), you usually need between 10 and 35 percent equity. Without some equity, it is actually only possible to finance the property with investors. It is advantageous if potential investors can decide and pay quickly.

Bank or investor?

The question of whether you should rather finance through the bank or an investor is therefore not so easy to answer. It depends in particular on how experienced you are and whether you have already gained experience or not.

In addition, it is useful if you already know someone who has enough capital to ask that person. If you don’t have anyone in prospect instead, finding an investor is rather difficult.

What are the additional costs on the purchase price?

With the fix and flip strategy, not only the selling price comes to you, but also the additional purchase costs. By these you can understand all amounts that are added to the pure purchase price of the object. This applies, for example, to fees for the notary, the transfer of the land register, real estate transfer tax and brokerage commission.

In addition to these costs, there is of course also renovation work. Depending on the condition of the house or apartment, different amounts may be incurred for the renovation.

What about the basement? Is this wet? Then it may be a little more expensive. How old is the heater and does it necessarily have to go out now or is it still functional for a few years?

All this should be clarified before the fix and flip process.

In addition, however, there are other costs, such as those for the broker. Depending on how much the broker pays for you, the amounts also increase. However, this means that you have to expect monthly amounts. Other costs that may arise are financing costs, operating costs, as well as insurance.

Conclusion 

One thing is certain: It is not so easy to fix and flip finance and there is not only one way to do this. In any case, you should register a business, otherwise you will be liable with all your equity capital. You should not only plan for the cost of the purchase price, but also the renovation effort, taxes and any insurance.