Personal Funding or Outside Funding – What is the Right Source to Fund Your Rehab

There is no denying that house flipping is one of the excellent sources of income. But when it comes to entering the market, you need a potential source of funding. If you have enough personal finances, you can always use them to fund your rehab. However, if you do not have sufficient capital, you can opt for a funding project with investors and lenders. You need to show some access to your capital or assets before funding your rehab project.

Whether you choose to cover the rehab, cost out-of-pocket, or plan to pay with loans and investments, know that both funding options come at a cost.  This is where you need to learn the balanced use of funding sources to grow your business and increase profits.

Personal Funding or Financing – What Makes the Better Option

Although both options come with pros and cons, determining the best possible way to rehab your flip totally depends on you. Many experienced investors often go for outside financing to get at least half of the rehab cost.

 In general, an investor can qualify for a 90% investment loan from the bank. Still, they need some outside capital that can help them pay in any unexpected situation.

If you have already purchased a property to flip and not sure how you should fund or finance it, we have you covered here. 

Why Should You Opt for Personal Funding?

As mentioned above, if you have sufficient assets and capital to cover the cost of purchase and renovate the property without having to borrow money, it makes a good option.

Even if you do not have liquid cash, you can use your savings and investment accounts to fund the rehab.

Selling one property to add to the cash is an excellent way to make the most of your personal funding.  Many flippers use their profits and income from previous flipping projects and invest in the rehabilitation of the next one.

 So how does personal funding can help you manage the cost of rehab a flip?

·         No Lenders, No Interest

One of the most important benefits of personal funding is that it is your investment. You do not need to borrow from any lender. That means you have not only more freedom to make purchases but also rehab and renovate them without paying any interest.

Plus, you do not need to provide proof of your completion of work to get your next payment from the lender to continue the work.

·         No Waiting to Get Your Loan Approved

Since it is your funding, you can use rehab finances for your flip right after the purchase. There is no need to wait as many flippers do when applying for the loan investment.  Generally, a bank loan for house flip or rehab takes 4 to 8 weeks to get the approval. However, with personal funds, you get a competitive edge to invest in the hot properties you spot without wasting time.

·         You Have Your Own Rehab Plan

Investing your personal fund means that you have your own rehab plan, and you know how much funds you need for the renovations. No paperwork or documentation is there to finalize the estimates when you are closing. 

But make sure that you have enough funds to rehab your flip to avoid any problem in the middle of the project.

Why Should You Opt for Outside Financing

While using your personal funds to rehab a flip offers plenty of benefits, it may not be the best option for every property investor. Opting for outside financing, in this regard, can be a good alternative for the people who do not want to lose their assets. Let’s quickly go through how choosing outside financing is beneficial.

·         You Can Keep Your Assets

Why do you need to liquidate your assets when you have an option to get the funds from an outside source? 

Moreover, when you use your funds for rehab, it means incurring an opportunity cost. If you fail to make the profits on your flip, you may lose all the investments.

·         You Might Not Need Good Credit Scores to Qualify to Fund Your Rehab

One of the key reasons many house flippers hesitate opting for outside financing is their poor credit scores.  However, there are numerous financing or funding options such as hard money loans that allow flippers to obtain money without having them to show good credit scores.  It is because their focus is on the value of the property after renovations.

·         Outside Financing (Private Lenders) Makes Lending Money Easy

Private lenders have made obtaining the needed funds for flipping and renovating extremely easy. They aim to serve investors by helping fund your rehab faster as compared to mortgage companies and banks.

·         Borrowing Money Sets Some Limit on Rehab Expenses

You might not have considered this reason before, but it does matter when it comes to financing a flip.

When you borrow money from a lender, you somehow scale and estimate your profits and revenues. You set a limit on the rehab cost to scale the estimates and make investments. If you are looking for financing options to grow or expand your business, you have the freedom to borrow a high amount of money and return it later.  Thus, you are not limited to the current assets as your only option to obtain the funds.

Some Tips to Consider Before Making a Decision

Flippers usually have to go through a scrutiny process when borrowing money from private lenders. Some hard moneylenders perform an inspection before they give approval for the loan. Not only this, you might need to provide some proofs when you complete the work to get the approval for the next construction. The lenders need a surety that they have invested in the right property, and rehabs will enhance its market value.  Remember that the property or house serves as collateral that ensures the lender he or she will get the payment back.

Final Verdict – How to Fund Your Rehab

Overall, determining the right choice to fund your rehab project requires you to weigh the pros and cons of both the options. Thus, the given details highlight the essential features of both the options to help you make an informed decision.

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