What is an asset based loan? An asset-based business line…
Michigan Fix and Flip Loans
Fix and flip projects can be very lucrative for those who have a talent for renovating properties and selling them for profit. Of course, the necessary funding must be available to make it happen. The first step is to find a property that you are interested in working with. Deciding how to finance the whole endeavor will be the next order of business. For those individuals who are fortunate enough to have the funds to cover everything associated with such a project, maneuvering the maze of loans won’t be necessary. However, if there is a need to obtain project funding, there are some details that will need to be taken into consideration. These steps include:
1. The amount of all holding costs related to the house/property. These costs include insurance payments, HOA fees, and assorted costs related to the property throughout the renovation process.
2. Ability to cover all costs related to labor and the materials for rehabilitating the property.
3. All fees and closing costs, including fees for a Realtor who will locate a buyer and costs related to selling the property when all the renovations are finished.
4. Different lenders charge different amounts, but the fee is generally between 20%-45% of the total price of the property as a down payment.
As a rule, traditional bank loans are not easily obtained for fix and flip projects. Such projects are considered “high risk”, so most banks will not provide loans for them. Those who undertake house flipping projects are essentially considered to be real estate investors. This is because income is not on a regular schedule since such projects fall under the category of seasonal work. This is the main reason financial institutions don’t normally provide business loans for these projects. Even the banks that will approve these types of loans tend to have less-than-sufficient loan products since these types of undertakings are usually completed within a few months, and bank loans tend to be long-term.
Alternative Financing Options
Finding alternative ways to finance house flipping projects can include loans or investments from family and friends or accessing home equity funds. After a few successful house-flipping projects have been completed, bank loans and various other funding options become far more accessible. A reputation for being a savvy businessperson will open a lot of doors that were previously firmly shut.
Obtaining The Funds Your Project Will Require
Experience speaks volumes, so once you have some successful fix and flip projects to your credit, more and more funding options will become available. While you are working to make that happen, take note of some steps you will need to learn and put into practice in order to be able to access more financial options in the future. These steps include:
Develop A Detailed Business Plan: Any potential lender will want to be made aware of all the specifics of your business plan. No one is going to invest money into a project blindly. Sound financial decisions can only be made when all of the necessary information and pertinent details have been presented clearly and concisely. When seeking financial backing for a fix and flip project, anyone considering investing will want the following information:
- The address of the property to be renovated.
- Details of a second plan – a “plan B” – in the event there are issues with the first plan.
- Information on each and every person/group involved with the renovation project. This will include any business partners you may have, contractors, inspectors, etc, Your investors have a right to know the people involved with the project along with any professional/background information pertaining to them.
- Prices, called comps, of at least 2 properties in the same neighborhood that are in similar condition to the property to be renovated.
- A detailed, professional breakdown and analysis of the neighborhood where the property in question is located.
- Two valuations, provided by an appraiser, one to indicate current property value and the other to indicate the estimated value when all work is completed.
- A “scope of work”, including secure financial forecasts, a detailed timeline for detailing completion of work, and various other strategies relevant to the project.
Keep An Updated, Detailed Account Of All Work: AN unrealistic estimation of any of the aspects of the project can result in a shortage of funding, which can ultimately cause the entire project to fail. This can be avoided with the creation of a concise scope of work. An experienced contractor and appraiser will be needed for this. By working together these two professionals can make an accurate determination of all the factors, including necessary funds to present to the potential lender(s).
Build An Effective Team: The people you choose to be a part of your team will make all the difference in your project’s success or failure. Therefore, you will want to know as much about each one of them and their work ethic, business practices, etc, as possible. Choose the best in each field and you can rest assured that your crew’s success and professionalism will shine through.