Fix and flip loans refers to financing tools designed to enable a real estate investor access and to acquire the capital he needs to renovate and improve on property so that he can sell it at a profit. This money is lent by hard money lenders and not from the traditional lenders such as banks. Fix and flips lending provide great opportunities for earning money. It allows one to use portfolio loans and private money to finance flips.
Why Choose Fix And Flips Loans?
• The loans are approved fast- some companies approve them the same day a client applies for the loan.
• The time taken before the loan is funded may range from 3- 5 days depending on the company
Properties That Can Be Funded Using Fix and Flip Loans
• Multi-family residences and single family units
• Commercial buildings
• Other types of property, which do not fall in the residential and commercial categories
One can apply for a loan of between $ 30,000 and $1milion+. The payment period varies but ranges from 6 to 12 months. However, there are many lenders who avail long term loans to borrowers. Note that most companies give loans up to 75% of the current value of the property. Such loans attract no appraisal fee, have no hidden junk fees and applicable interest rates depends on the firm providing the loan.
What the Lender Consider In Fix and Flip Lending
• The experience the applicant has in the real estate regarding fix and flip projects.
• The amount of capital available
• The purchase price of the property in question
• The estimated value of property after repair
• The estimated cost of renovation
It is important to note that hard money rehab loans may be based on the current value of the property. Alternatively, the lender may base it on the after repair value. One of the reasons why lenders base their loan on the current value of the property is that it reduces the risk associated with renovation of property. The maximum loan value may range between 65-75 % of the value of property. This helps the lender to assess whether the borrower is serious about the deal or not.
Mistakes made in Fix and Flip Lending
• Overestimating the after repair value-to avoid this, the real investor needs to research the market and come up with a conservative repair value of the flipped house
• Not having a contingency fund- in some cases, the lender may not accurately determine the necessary cost of the house flipping project. As such, they may not have enough money for contingencies.
• Excessive renovation- this is where the renovation process adds premium features, which may not exist in homes in the neighborhood. The buyers may not pay a premium for them.
• Working with inexperienced contractors- the contractor may not have the experience required to carry out the repairs as required.
• Underestimating the time- fixing and flipping houses require that the project be completed and sold as quickly as possible to reduce the holding costs.