6 Tips for Using a House-Flipping Business Loan
If you don’t invest in the right areas, flipping houses can become an expensive venture that isn’t worth your time or resources. That’s why many small business owners pursue fix and flip loans to finance their projects!
In this blog post, we’ll provide six examples of ways that you can use a business loan to grow your house-flipping business into a lucrative company! You might be surprised at how having additional financing for flipping houses can make the entire process easier.
How to Use Your House Flipping Loan
1. Purchase Property
To remain operational, house flippers always need to be on the lookout for their next property. After determining how much you want to spend (we suggest using the 70 percent rule), you can find houses within your budget.
When you find the perfect place in the right neighborhood, you want to be ready to buy it so you can start the flipping process. With a business loan, you’ll have the funds available and won’t have to risk losing the property to another buyer or paying for the purchase price out of pocket.
2. Invest in Supplies
The price you pay for supplies, tools, and equipment will depend on what you already have available and how much work needs to be done on the property before it can be resold. Unfortunately, if you need a lot of supplies, the costs will quickly add up.
Once you receive a business loan, you can buy or rent equipment, or purchase basic supplies like lumber and nails.
Later, when you design the space, the money can be used for everything from new cabinets to renting furniture for staging. Having a loan gives you financial freedom, and you won’t need to worry about being unable to afford the necessary supplies!
3. Hire Experienced Workers
As you likely know, house flipping projects are easier when they are extra hands to help. Due to this, you should consider using your small business loan to hire additional employees.
If you decide to spend your loan on hiring, be sure you’re considering all of the costs that come along with that. For example, aside from the employee’s wages, you’ll need to consider these costs:
- Background checks
- Additional tools or supplies
- Employee benefits
- Training courses
4. Pay for Contracted Work
There are some jobs that might not require you to hire a permanent, full-time employee, but could be something that you can’t tackle on your own.
Using your loan amount, you can hire contractors for these types of projects. For example, if you need to replace a roof, you could pay for a professional roofing company to handle this job. You could also hire contract employees to handle other jobs that you might not having time for, such as painting rooms once the house flipping project is nearing completion.
5. Afford Insurance and Fees
Taxes, insurance, and legal costs are often not the first thing people think of when they consider flipping houses for a profit.
However, these costs are necessary and must be part of your budget. For instance, you’ll need to pay for:
- Work permits, so that you can ensure that your team is conducting projects safely and legally.
- Property insurance, which can vary based on the area the home you’re working on is located in.
- Utilities, so your workers have access to water and electricity to do their jobs.
6. Sell the House!
When the job is completed, and you can admire your hard work, there’s still one thing left to do; you need to sell the house. This can be exciting because you’ll hopefully be earning money that will help you take on more projects, but you should remember that you’ll need to spend a little to make a lot.
Open houses and ads in the newspaper are inexpensive but might not attract enough potential buyers. Instead, you might benefit from using your loan money to hire a realtor, which will give you the best chance of selling quickly.
Conclusion: Consider the Pros and Cons of Investing in Different Areas of Your House Flipping Business
There are a lot of unexpected costs that come with running a house flipping business. Using a loan to cover those expenses can help complete your project and allow you to get moving on your next home!
Of course, every business is different, so your preferred use of funds may be different from another house flipping business. It’s crucial that you consider the following factors before deciding on how to use your fix and flip loan:
- The type of loan program you’re interested in; do you want a long loan term, or do you want to use the funds and quickly pay off your balance?
- Your business’s short-term goals, especially if you have an immediate financing need.
- Your business’s long-term goals: do you plan to use this loan for significant growth plans?
If you have questions about pursuing a business loan or how you can use funds to grow your house flipping company, don’t hesitate to contact the Fora Financial team!
Editor’s Note: This post was updated for accuracy and comprehensiveness in October 2021.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.