How do you get a loan to flip a house in Canada?

House flipping is fun and profitable if we’re to judge by what we see on TV shows. But in real life, it requires many things to flip houses for profit; one of the most important is money. Unfortunately, most people don’t have that kind of money lying around, which leads to the question, how do you get a loan to flip a house in Canada?

There are several ways to get a loan for flipping your house. Available options include mortgage loans from banks, loans from private lenders, home equity loans, crowdfunding, joint ventures, and borrowing from personal sources. With various options available, you also need tips on getting a loan.

Although these loan options provide you with access to money, you need to know which is best for you. You only do this when you fully understand house flipping and what each loan option offers. Thus, we discuss how you can get loans to flip a house in Canada.

How to Finance House Flipping

Getting the money to flip a house in can be quite complicated. It’s not anything like a regular home purchase. You may also need money to buy the property and finance renovations and all the other costs attached. If done successfully, you’ll make a profit. But finding the money in the first place isn’t so simple. The best option is to use loans. 

Types of Loan in Canada

Here are the loan options you can take advantage of:

Traditional Bank Loans

Everyone is used to getting loans from banks. So naturally, this makes them one of those places you’re likely to go when you need a loan to flip a property. But a bank loan isn’t the easiest way to finance flipping. For example, most banks usually give long-term mortgage loans that can last for decades. Home flipping, on the other hand, usually doesn’t exceed a year.

Due to this, banks are more likely to impose a higher interest rate on the loan if they give it to you. In most cases, banks won’t even give short-term mortgages.

You do have the option of fix and hold. In this case, you’ll buy and renovate the property. But instead of selling immediately, you rent out for a few years. It’s a good way to extend the mortgage term and give you a better loan option. But when adopting this option, make sure the renting price covers all the expenses.

Home Equity Loan

If you already own a home, you’re likely going to have equity in that home. You can use the equity to get another loan to flip a house in Canada. There are two ways to do this. Either through a loan which will be a second mortgage on your home. In this case, you’re borrowing and using your home as collateral for a fixed period.

The other option is a home equity line of credit. This can work well for short-term debt. With it, you can draw against your credit when you need it. This option usually comes with a fixed interest rate for a period before it becomes a variable interest rate.

Private Lenders

This is one of the easiest and most commonly used ways for getting loans needed to flip houses. Most people who flip houses go for this option when they can’t get what they need from traditional lenders like banks. 

Such loans are usually for the short term, which works well for house flipping. But you’ll also have to pay higher interest rates and other fees. Such fees include legal fees, lender fees, appraisal fees, and sometimes, brokerage fees. Usually, it costs more than bank loans. So, it’s an option you should use if banks don’t give you the loan.

Private Borrowing

Another way to get loans to flip a house in Canada is by borrowing from those closest to you. These’re your friends and family. If you’ve rich friends and relatives, this could be an option to consider as they may offer you better rates.

But getting into business with friends and family can be tricky. So, make sure you clarify everything from the beginning. Let everyone know what they’re getting into, and it also helps if your contingency plans.

Also, avoid the mistake of treating such a business relationship like a personal relationship. Instead, have a legal agreement drawn up and exercise due diligence.

Joint Venture

The joint venture is all about finding investing partners to work with. Together, you can contribute money and split the workload. Of course, there’ll be a legal agreement in place forming the joint venture and stipulating how to share profits. It’s all about working with people who have the same goals as you.

Crowdfunding

Crowdfunding is similar to a joint venture, but your partners are only offering you money this time around. You do all the work and repay the funds with dividends within the stipulated period. There are several crowdfunding platforms in the country.

However, there are specific platforms that crowdfund for house flipping. These platforms are better for retail investors because you simply get a loan you must repay with interest. Examples of such are Groundfloor, Fund that flip, Patch of land, etc.

Each platform has guidelines on how much they can lend you, the interest rate, percentage of renovation costs, minimum interest payable, etc. Crowdfunding platforms are great in their ways, but unlike private lenders, you’re unlikely to have an opportunity to negotiate the terms.

Tips for Getting House Flipping Loans

  1. Your credit score plays a major role in your ability to get the loan
  2. Experience may affect your ability to get a loan as some lenders won’t lend to first-timers, and those who do may impose a higher interest rate
  3. Not every lender gives 100%, so it’s important to have savings
  4. Having a relationship with the lender can speed up the loan process
  5. Research ahead to know all lending requirements before seeking a loan

In Conclusion

Flipping a house in Canada can be very profitable if done the right way. But you also have to spend money to buy the house and put it in the right conditions to resell it for a higher price. This is where getting a loan comes in. Fortunately, there are several ways to get loans, and with these loans, you can easily go about your business.

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Thais R

I moved to Canada in 2016. This was the best decision that I ever made. I created this website to share what I’ve learned with anyone who’s thinking of moving or travelling to Canada.

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