Fix and Flips: 2 Great Ways to Utilize Equity
Venturing into the world of real estate investing can often feel like traversing through a complex labyrinth. One of the most powerful strategies within your toolkit is knowing how to effectively harness your property equity. Today, we’re going to delve into two practical ways to leverage equity when embarking on fix and flip projects.
Having Skin in the Game: LTV and Your Investment Property
When you’re considering using hard money for fix and flip investments, the concept of Loan-To-Value ratio (LTV) becomes paramount. In simple terms, this ratio signifies the portion of your property’s value that the loan can cover. At Fulford Lending, we typically offer loans up to 70% LTV. This implies that your equity, or your ‘skin in the game’, must account for the remaining value.
Let’s take an example. Suppose you’ve identified a property ripe for renovation, listed at $100,000. You can visualize its potential post-transformation. In this scenario, we could potentially lend up to $70,000, while your initial $30,000 investment establishes your vested interest in the project’s success.
Such an approach is beneficial because it doesn’t hinge on your credit history or income, but on the concrete value of the property. It encourages thoughtful, smart investments, setting the stage for a successful flip. However, beware of exorbitant LTV offers, such as 90%. Without sufficient skin in the game, the borrower may abandon the project, forcing the lender to shoulder the fallout and the borrower with nothing but debt to show for it. A reputable private hard money lender wants to facilitate your success, not own your property or navigate the labyrinthine foreclosure process.
Tapping into Your Portfolio: Using Equity from Another Property
Another potent tactic for financing your fix and flip endeavor involves utilizing equity from another property in your portfolio. If you’ve already reaped successes in real estate and own property with significant equity, this equity can be leveraged to underwrite your upcoming venture.
For instance, let’s say you own a property valued at $200,000, entirely paid off. You could potentially use this property as collateral to secure a loan up to $130,000-$140,000 (70% of the current market value), which could then be funneled into a promising fix and flip opportunity.
This strategy doesn’t necessitate any immediate cash expenditure for the new investment, while simultaneously enabling you to harness the assets you’ve diligently acquired.
In conclusion, whether you’re utilizing the equity in your new investment property or leveraging the equity of an existing one, hard money loans offer a flexibility and convenience that traditional financing options often can’t match. Bear in mind, the art of fix and flip investments isn’t confined to identifying the right property for renovation, but also includes mastering the financial strategies that render your venture viable and profitable.
Real estate investing is as much about financial sagacity as it is about bricks and mortar. Mastering the use of equity is an indispensable skill set that can help actualize your real estate ambitions. Here’s to your successful flipping adventures!