The Best Strategy For Private Money: Buy and Hold or Fix and Flip

By tungphoto, published on 10 March 2011
Stock Photo - image ID: 10033486

Deciding on a lender can make or break a deal because the profit margin depends on your interest rate, points and loan term.  Having a low interest rate can keep your costs low and for buy and hold investors this is crucial in determining if a deal is profitable.  For fix and flip properties the interest rate is not as important just so long as you can turn the property around and sell it in a short period of time.  The key for fix and flip deals is to keep the points low and to also have a buffer of time in case the renovation is taking longer than expected.  However the longer you have a loan for renovation the more money you’re spending which can eat into your profits in the long run.

Private Money lenders are more suitable for fix and flip properties than they are for buy and hold but you can make it work for a buy and hold property if it’s your last option.  For people who have bad credit, private money is usually the only option and that means you have to have really high profit potential from a property to make it worthwhile for a buy and hold property.  

One way to make private money work for a buy and hold scenario is to buy the property and then use it for collateral for a bank loan.  Banks are more likely to give you a loan if you have real estate as collateral.  This way you can pay off your private money loan faster, get a lower rate from a bank and save money on your rentals.  Community banks and credit unions are the best option for rates and more lenient terms than larger banks.  

Just remember that private money is for short term solutions and make sure you create a relationship with your private money lender so they will be more willing to loan to you again.