What is an asset based loan? An asset-based business line…
Maine Fix and Flip Loans
When you are planning to embark on a fix and flip project, your first priority will be funding. When you locate a property you want to renovate and re-sell, then you will have to consider your financing options. Some people have the necessary money on hand to undertake this type of business venture, which is quite fortunate. However, since most people aren’t in this position, other possibilities for obtaining financial backing will have to be found. There are four steps that need to be taken when planning the finances necessary for fixing and flipping a property:
Step 1: Secure the money to cover the entire costs of the work and materials necessary to renovate the property.
Step 2: Holding costs, including fees payable to the local HOA, insurance fees, and costs of ownership of the property during the duration of the work process until it is sold.
Step 3: 20%-45% of the entire price of the property required by the lenders as a down payment.
Step 4: Realtor fees for the professional Realtor who will be responsible for the sale of the property and closing costs.
When it comes to fix and flip-type projects, traditional bank loans are not usually available because they are considered as high-risk projects; these often result in a financial loss for both the borrower and the lender. People involved in these types of business ventures are considered to be real estate investors because when it comes to this kind of work, there is no steady “salary”. This is due to the fact that the work is considered seasonal in nature. This is why banks do not like to approve loans for these projects. Even banks that are willing to provide loans for fix and flip projects, the loan product is most often lacking in meeting the entire needs of the job. Since projects of this nature take just a few months to complete, financial institutions are not comfortable with providing financing since their loans are long-term.
Because of the difficulties with trying to obtain funding from financial institutions, most people involved in fix and flip projects seek alternative options for funding their work. In the beginning, individuals who are new at house-flipping will discover that it is easier to get loans from friends and family. Investing any available home equity is another option. When you have completed a few lucrative renovations, your record will speak for itself and more financing options will present themselves. Loans will become easier to obtain as well as lines of bank credit.
When you are ready to get serious and seek out an appropriate bank loan to fund your project, there are some steps you can take that will go far to ensure your approval. A good time to check into loans or credit lines is when you have completed a number of successful projects of this nature. Whether you are working with a bank or a private lender, either will be more likely to support a project financially when the developer – that’s you – has an impressive success record. At any stage of your project, these tips will give you a better chance of anding financial backing:
1. Create A Sound Project Outline: Lenders will require as many details as you can provide regarding your project. A number of lenders will themselves have experience in supporting projects of this kind. They are well aware of the amount of work and funding it will take to refurbish these properties. They will need a detailed outline of the type and amount of work you plan to put into the project so that they can then make an informed decision. In order to give yourself every possible advantage, you should provide the following:
- Address of the property
- Full background information on the parties who will be instrumental in the project (this will include other investors, inspectors, contractors, and the like)
- An alternative plan (a “Plan B”) for your project should the original plan meet with problems.
- Two property valuations prepared by a professional appraiser which will show the present property value of your project as well as the estimated value of it once all work is finished.
- Comps, or sale prices, of 2 to 3 properties similar to your chosen project property in the same neighborhood so that similar property values are shown.
- A detailed account of all aspects of your planned renovation and concise financial forecasting representing your project at each stage of its development stages, referred to as scope of work.
2. Maintain An Updated Log of Project Expenses
You certainly will not want to find, in the middle of your project, that you have erred in the calculation of your funding needs. This type of error will end your project immediately. Be certain to create a spot-on scope of work with the help of both an appraiser and a contractor experienced in such matters. This will ensure that all aspects of your project are covered.
3. Create Your Success Network
In these projects, as with any other business undertaking, your professional connections will all be team players. As you put your team together, learn all you can about each member, their business experience, rate of success, and work ethic. Make sure to choose reputable people to work with who will be invaluable to your present project and any future undertakings. By taking the time to learn everything you can about every step involved in your endeavor, you will guarantee yourself success and many lucrative outcomes.