Are you considering a fix and flip house?
If you can buy a property cheaply, fix it up, then sell it fast for a profit, it’s a great way to make money and boost investments. But financing a fix a flip by yourself can be tricky. It takes a large chunk of capital to get your first property turned around.
That’s where fix and flip loans come in. Keep reading for the benefits of a fix and flip loan to get you started.
What Are Fix and Flip Loans?
Flipping a property is where you usually buy a home that needs some repairs or remodeling, and you flip it on and resell it for a profit once the work is done. This method works for most property types but it’s most common for residential homes.
Fix and flip financing is the short-term, high-interest loan that will allow you to do this. It covers the cost of buying the property and making the necessary repairs. This type of loan makes it possible to buy what’s classed as a “fixer-upper”.
Older properties usually need a lot of TLC to bring them up to modern standards. Bear in mind, these are properties you can spend minimal effort fixing up since they don’t usually need major renovations or structural work. You use your remaining loan funds to make those changes and bring them up to modern building codes.
Most professional “flippers” will make aesthetic improvements that align with modern standards too. They will add easy interior upgrades that buyers pay a premium for.
A tip for a fix and flip loan for beginners is to buy a run-down home in nicer areas. This will work well if the price you bought it for is >70% of the estimated valuation once repairs would be complete. The extra funds will help cover unexpected costs and help prevent making a loss on the property.
What Are the Benefits of Loans for Fix and Flip Projects
Now you know what fix and flip loans are, let’s look at what makes them a great option. Here are the top benefits you’ll get from financing a fix and flip project with this kind of loan.
1. Fast Approval
Compared to conventional types of loans, the time it takes for approval is much shorter. This is due to the fact the funds come from private investors. Traditional loans come from a bank or credit union.
The application process is fast, too. Normally, you’ll only need to present a business plan for the project, projected costs, and how you’ll pay down the loan once it’s renovated. The lender wants to know more about the project rather than your personal credit history.
If your plan is attractive, your loan could be approved within a few days.
2. No Penalties for Pre-Payment
With a conventional loan, you will often face penalty fees for early repayments. These penalty fees can eat into your profits as you would hope to make an early repayment given the quick turnaround of flipping houses.
With fix and flip loans, there usually aren’t any early repayment fees. Designed as a short-term loan, this route is better suited to the fast-paced, uncertain nature of the property flipping industry.
3. Open to a Variety of Property Options
There are strict rules and regulations with traditional bank loans on the type of property you can buy. They only cover certain types of renovations, and rarely cover fixer-uppers.
In contrast, the type of property and condition will have no bearing on if you get a fix and flip loan or not. So, if you’re looking at a flipping project in disrepair with huge potential, fix and flip loans can help.
4. Offers Secure Investment
The property itself acts as your collateral damage for a fix and flip loan. If you can’t turn a profit on a sale, then the lender can take ownership of that property.
With traditional loans, you have to worry about your personal credit score. You may even have your own property at risk if you default.
5. It Covers the Repairs
You will often get the best returns on homes that require cosmetic work to be done. Fix and flip loans will usually come with a set loan reserve to cover those repairs and renovations.
With this in place, it takes off the pressure. There is no worry about paying out of pocket for these upgrades and profit-generating renovations yourself. After all, that would eat into your profits.
6. Structured to Suit Property Flipping
Another advantage of fix and flip loans is the fact they’re structured for that purpose. Most of these flipping projects are completed within a year. This is such a short time span, and most credit unions or banks won’t agree to it.
When you apply for finance that’s tailored to your project, there is a better chance you’ll succeed. This also helps with budgeting the project, and keeping costs manageable and organized throughout
7. It Boosts Your Buying Power
Most fix and flip loans have lower downpayment requirements than other loan types. This means that you are able to further leverage your capital to boost your buying power. Essentially, you can consider a more expensive project in a more desirable area that’s likely to sell faster and generate more profit.
Fix and Flip Loans: A Viable Option for Your Next Project
So, there you have it! Now you know the benefits of fix and flip loans you can see if it’s the right choice for your next project.
With great flexibility, lower down payments, and fast approval times, you can get started in no time. They’re tailored for fix and flip projects and offer secure investment to get your project off the ground.
If you want to know more, contact a regional manager today. At Shepherd’s Finance, we have the experience and vision to help with your fix and flip loan needs.