The loans tend to be small, and once the investors have finished the renovations, which sometimes involves just a little sprucing up, the homes hit the market. “A lot of local banks are looking for larger deals, and six months in and out is just not their business,” Workman says.

But for those willing to do these short-term loans, it can be a lucrative business. “You are able to turn over the same capital several times a year,” something most lenders can't do. Furthermore, “it's not like there are dozens of other institutions out there doing these types of loans. Our biggest competitor is cash.”

And for the individual investor, especially those that want to renovate and sell several homes at once, taking out loans may make more sense than plunking down cash. If a specialty loan like this requires only 20% down, for example, an investor can then launch five renovation projects instead of one. “You can boost your yield with the same amount of capital.”

Although house flipping declined a bit during the most recent quarter, Workman believes this activity will continue to chug along at a good pace. There are millions of US homes that need renovations, he points out, including ones just ten or fifteen years old that investors could boost in value with just quick updates. And with housing inventory so low, there is a real need for this product. “I don't see a slowdown coming along.”

CHICAGO—House-flipping became a popular activity for investors in the aftermath of the recession, but even though the market is no longer flooded with distressed inventory, the practice remains common. But what has changed for these ventures in the past few years is the rise of alternate forms of financing.

Of the 45,718 homes flipped in the third quarter, 67.9% were purchased with cash, an eight-year low, and down from 68.2% in the previous quarter, according to a December report by ATTOM Data Solutions. ATTOM considers a home flipped if it sells in an arms-length sale for the second time in 12 months.

“The lion's share of this work, about 80 to 90%, is done by individual investors,” Eric Workman, vice president of marketing at Renovo Financial, tells GlobeSt.com, and more people seem willing to take on that risk. But these deals typically don't fit the needs of local banks, so investors frequently “need specialty financing in order to do it.”

Chicago-based Renovo just closed its 1,000th house-flipping loan since 2011, lending $200 million to residential real estate investors on revitalization projects valued in excess of $350 million. According to ATTOM, house flips were 5.6% of single-family and condo sales in the second quarter, a six-year high, although the practice did decline to 5.1% in the third.

The loans tend to be small, and once the investors have finished the renovations, which sometimes involves just a little sprucing up, the homes hit the market. “A lot of local banks are looking for larger deals, and six months in and out is just not their business,” Workman says.

But for those willing to do these short-term loans, it can be a lucrative business. “You are able to turn over the same capital several times a year,” something most lenders can't do. Furthermore, “it's not like there are dozens of other institutions out there doing these types of loans. Our biggest competitor is cash.”

And for the individual investor, especially those that want to renovate and sell several homes at once, taking out loans may make more sense than plunking down cash. If a specialty loan like this requires only 20% down, for example, an investor can then launch five renovation projects instead of one. “You can boost your yield with the same amount of capital.”

Although house flipping declined a bit during the most recent quarter, Workman believes this activity will continue to chug along at a good pace. There are millions of US homes that need renovations, he points out, including ones just ten or fifteen years old that investors could boost in value with just quick updates. And with housing inventory so low, there is a real need for this product. “I don't see a slowdown coming along.”