Fix and Flip Loans

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You already know that you’re interested in buying and flipping a home. You’re excited about the possibility of making a profit by making a home look beautiful before passing it on to an excited buyer. You even have a good idea of which house you’re interested in flipping. You’re here because you need to figure out how to get funding for your flip. This is where fix-and-flip loans come in. They’ll help with the costs associated with the flip, including the following:

  • Create a business plan for your flip so that your potential investor knows exactly how you plan to work the flip from beginning to end.
  • Map out a clear estimation of your renovation costs. A clear scope of work can let your investors know that you’re clear on where every penny is going.
  • Build up your connections list. This will help you stay in contact with investors who have the same goals as you.

Why You Need a Loan to Finance Your Flip

Many people interested in financing a flip don’t have the funding to do so. They’ll need funding to take care of the extensive costs associated with buying a flip. Those costs include the following:

  • The actual purchase price of the house, 20 percent to 45 percent of which you’ll need to bring to the closing as a down payment.
  • The holding costs of the home, which include items like HOA fees, insurance payments and all the other costs that will need to be covered while the house is in “fix” mode.
  • All of the costs associated with the reno, including materials, tools and labor.
  • The costs associated with the sale portion of the house, including the realtor costs and closing costs.

Traditional Banks Are Not the Way to Go

You’ll go to a traditional bank to purchase a regular home, but that’s unlikely to work for a fix and flip. When you identify yourself as a flipper to a bank, you’re essentially outing yourself as an investor, with all of the associated risks that investors carry. Banks look at investor income as irregular and random, making it too risky for a traditional loan. Real estate loans from banks are usually long-term loans, and the loan you’d be looking for as a flipper would be short term.

Flippers Look for Non-Traditional Loans

Since traditional banks are usually not an option, many flippers turn to non-traditional means to get funding for their flips. This is where fix and flip loans come into play. There are several funding sources for flx and flip loans, but before you apply, make sure that you have a plan in order. Just like with a traditional bank, having your paperwork in order will make it more likely that you’ll get the money you seek. Make sure you have the following ready to go:

  • Create a business plan for your flip so that your potential investor knows exactly how you plan to work the flip from beginning to end.
  • Map out a clear estimation of your renovation costs. A clear scope of work can let your investors know that you’re clear on where every penny is going.
  • Build up your connections list. This will help you stay in contact with investors who have the same goals as you.

Your Flip and Fix Loan Options

Here’s a definitive list of your flip and fix loan options.

Friends and family

Your personal network of friends and family can be an excellent resource, especially if you have the backup docs mentioned above and start off relatively small. Once you complete your first successful flip, more people will be inclined to invest with you.

Financing Partner

A great financing partner who understands the market can provide funding or help you find funding through their network. This is why networking is so key.

Home Equity Line of Credit

This works best for flippers who are homeowners and who have at least 20 percent equity in their property. You only take out the money as needed, so check with your bank and see how much you qualify for.

Take Money Out of Your 401(k

This is a great option for a young flipper who has time to take out the money, use it and put it back before retirement. With 401(k) plans, you can take out up to 50 percent of your account balance or $50,000, whichever is lower.

Personal Loan

If you have great credit, you can take out a personal loan. Rates are often as low as five percent for people with great scores, and payments can be spread out anywhere between three and seven years. These loans usually top out at $50,000, so combine them with other financing options.

Seller Financing

This loan type is when you take a loan from the seller to buy the home. You’d then fix up the house, flip it, pay the sale proceeds to the seller minus the difference between the final sale price and the loan price. That difference will go to you.

Hard Money Lender

This type of lender may help out less qualified buyers. They get them the money, but they also charge very high interest rates. These loans are extremely short-term loans with terms of a year. They’re intended to get you through the fix, flip and sale of the home.

Hard money loans are praised amongst real estate investors for their quick turnaround and simple application process. With this in mind, many investors wonder, are other financing options even worth considering?

Are Hard Money Loans Better?

Investors that are reviewing hard money loans and other financing options have to look at the value of each loan compared to their specific situation. Depending on what they need and what each loan offers, they may find hard money loans to be quite beneficial.

Compare the following financing options to see whether or not hard money loans will work for you:

Hard Money Loans

Hard money lenders in Sterling Heights, Michigan differ from other institutions in that they are private firms and individuals. These lenders offer flexible terms that are ideal for investors that need custom loans to fund their property purchases and investment ventures.

The application process for hard money loans is particularly simple and allows real estate investors easy access to flexible funding.

While other loans and financing solutions require borrowers to have a certain credit or proof that they can repay the loan, lenders of hard money loans focus on the property that the investor will be using for collateral. The value of an investor’s property is what will influence the value of the loan.

VA Loan

Investors that are affiliated with the military are often eligible to receive a VA loan to buy a house. While these loans are advantageous as they don’t require a down payment, they are only applicable to non-investment properties. If you are looking for financial support to purchase you own house, a VA loan may be right for you.

Bridge Loan

Investors that are stuck in between the sale of one property and the purchase of a different property will find that a bridge loan might be their best option. Much like the hard money alternative of a bridge loan, regular bridge loans are provided by banks. While this loan has similarities to a hard money loan, the interest rates are likely lower with the standard bridge loan.

Business Lines of Credit

A business line of credit will benefit investors that have good credit. As with any line of credit, investors can withdraw money from it whenever they need to make a property purchase. While this is a pretty advantageous financing option, most investors may find that they have trouble qualifying for it. As they are given by banks, investors that can’t prove they have a positive track record with money or investing won’t be able to take advantage of this option.

Cash-Out Refinancing

Investors can use cash-out refinancing to turn their mortgage into a loan. Based on the remaining amount that they have left on their mortgage, an investor can ask for a larger loan that they will receive in cash. This extra equity is re-lent to the investor to use with a second property as a down payment or to fund the entire purchase.

Home Equity Loan

Investors that are still paying off their mortgage can take advantage of the home equity loan by turning the equity left in their home into a loan. This money can be used to purchase a second property or as a down payment on another property. With this type of loan, the investor needs to own property already—either their own home or another investment property.

Home Equity Line of Credit

The HELOC allows investors to turn their equity into a line of credit. Investors can access this credit to purchase a second property—either outright or to fund the down payment.

Are hard money loans worth the hype? If you find that they make the most sense for your situation, today is the day to speak to a hard money lender.

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