Are you interested in starting to fix and flip some houses in your local community, but unsure of where to receive financing for it? This is a common struggle among first-time flippers. Setting yourself up with the right fix and flip loan can create a successful stream of revenue for this business venture. Because it is so common, there are many of the same questions that pop up, some of which you are probably asking yourself.
Here are the answers to several frequently asked questions about fix and flip loans. Be sure to consider all these answers as you find the right lender to work with.
1. Is There a Significant ROI?
As with any business venture, it’s understandable that you’d want to make sure this process is really worth the project time ahead of you. One of the most glaring questions people have about fix and flip loans is whether or not there is a considerable amount of return on investment (ROI) for them. This question mainly refers to the process of borrowing money in order to get the project done. However, you need not worry! After you’re finished, you will be able to cover the fix and flip loan that you receive and keep a nice profit for yourself and your next venture.
2. What Properties Can You Receive a Fix and Flip Loan for?
The answer might vary depending on which fix and flip loan provider you decide to work with. However, most lenders will at least consider offering a loan for properties such as townhouses, condominiums, single-family homes, or 4 (or less) property units. That range gives you flexibility on what you want to fix and flip your first time around. For example, if you’re looking to test out the process, you could consider fixing up a condo for your first project. For those of you that want to go sink-or-swim with a single-family residence, that’s your prerogative!
3. How Does Fix and Flip Financing Differ from a Bank Loan?
The entire fix and flip process is unlike any other reselling process on the market. As such, you need a loan that’s specialized to cater to the timeline of said project. Fix and flip financing gives you the hard money you need for your fixer-upper and allows you to slowly pay it back month by month. When the project is finished and the property has been sold, you can then pay off the rest of the loan with a lump-sum payment. Typically speaking, the fix and flip loans are a bit higher in interest to compensate for their short-term style of loan. The hope for you (and the investor) is to have the loan shortened as much as possible. Everyone is on the same timeline and agenda!
4. What are the Terms and Conditions of a Fix and Flip Loan?
It’s only fair that you’d want to know the conditions that must be met during the lifetime of your fix and flip loan. Generally speaking, loans can be created from as little as $25,000 or $30,000 to as much as $1 million or more! Because both you and the lender are wanting the timeline to be as short as possible, the loan typically lasts between 6 months or 12 months. However, if your project is going to require a little more time, then your loan provider will be happy to lengthen it a bit. Loans for flipping houses can only reach 75-percent of the property’s total value and will contain interest rates considering the “risk” that a lender views on the project.
5. What Documentation Is Needed to Apply?
Different lenders have different requirements for the application process of their fix and flip loans. However, there are several pieces of documentation you’ll want to have prepared to use as needed. First, be sure to provide a sales contract for the property and a construction budget of all the costs you’re projecting. Next, you’ll want to bring a monthly bank statement and a tax return from the previous year. Be warned, some places require that you bring two years of tax returns. Also, if you have other properties that you own, you’ll need to bring information on them as well.
6. What Common Mistakes Should I Avoid?
One of the biggest mistakes with most first-time flippers is biting off more than they can chew. Remember to take it slow and learn from your first go-around. You’ll make mistakes along the way, there’s nothing wrong with that. As long as you’re working with a trusted lender, they’ll work with you to learn the process and help you set yourself up for success.
7. How Long Do They Take to Receive?
Some of you out there need the loan relatively quickly in order to match up with your timeline. In fact, some of you might need to receive the loan within a week to not get stuck using your own money. Luckily, since you’re working with a private lender on your fix and flip loan, you can receive the loan within that small timeframe.
Apply for Your Fix and Flip Loans Today!
Now that you’ve received answers to common questions about fix and flip loans, it’s time to find the right lender to work with.
Be sure to read this article on why Shepherd’s Finance LLC has the best fix and flip program for your project.
For more inquiries, please be sure to reach out via our contact us page and we’ll be happy to assist you further!
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