Television shows have made the business of house flipping look easy. The way it is set up, it feels like all you need is to have enough money for the down payment and renovations and then everything will fall into place. The good news? You sell your house for a good profit. Things seldom go that smoothly, though, especially when this is your first time.
Putting More Money Down is Safer
You may think that house flipping for as little money as possible is the ideal way to go about it, but not all the time. This may work for you, but only if you have had years of professional experience. What many overlook is that the lower the home equity is, the higher the mortgage payments are.
If you do not reach 10% in equity, the mortgager will require mortgage insurance out of you. This can increase the interest you have to pay by at least 1%. It may not seem much if you consider that you can sell the house as soon as possible anyway. Then again, what if it takes you 10 months or even a year to do so? Having lower mortgage payment is safer especially if you cannot sell the house in less than a couple of months.
You will need extra cash to handle unforeseen expenses. Things like a roof that has more leaks than you thought or pipe boxing that needs replacement can cost a lot. Naturally, you cannot leave these flaws unrepaired. If you do, you may have a harder time selling the house. If you do not have extra cash, borrowing money to get the job done will eat further into your profit.
The last place to look for extra funding is the bank or a lending institution that loans to house flippers. Inevitably, these loans will have higher interests and may require an upfront fee. If you can manage it, borrow the spare cash from individuals who have low-yield cash deposits and can offer you favourable interest rates.
It may be true that the potential for a quick turnaround is high, but you must have funds to cover all necessary and surprise expenses to secure your project.