Fix and flip loans help real estate investors finance the purchase, and renovation, of a property so that it can be flipped for a profit. Delancey Street can help provide fix and flip loans all across the USA for real estate investors. We have immense experience, and have funded over $100 million in fix and flip loans.
We offer fix and flip loans with rates starting at 7%. You can get funding in as little as 7 days, and there’s no prepayment penalty.
Below are some of the most common types of fix and flip loans.
Cash Out Refinance Loans – Great for investors who have a property with 30-40% equity in it.
Home Equity Line of Credit – Good for investors who have an owner-occupied residence with over 30-40% home equity.
Investment Property Line of Credit – Investors who have equity in their rental property, and want to get cash out of it to rehab a current property, or to buy a new property.
Bridge Loan – Good for investors looking to purchase a property quickly without having to sell another one first.
Bank Loan – Good for investors looking to buy and hold properties.
1. Fix and Flip Hard Money Loans
These are the stereotypical hard money loans, which are short term loans that have been secured by real estate. These loans are used to purchase and then renovate a property. Investors usually will use a hard money loan in order to purchase, renovate, and then sell a property in 1 year. They are ideal for fix and flippers since these types of lenders finance properties in poor condition.
Hard money loans have lower qualifications for approval than traditional banks. They help fix and flip investors get funding in 7-15 days. They are ideal for novice, and experienced investors alike. Hard money lenders care more about the property and it’s potential value than who the borrower is.
2. Cash Out Refinance Loans
This another great way of funding your fix and flip. It’s possible to refinance your existing mortgage, and get a new mortgage to replace the current one. If there is enough equity in the house, you can do a cash-out refinance which will allow you to access the extra equity in the property.
Typically you need at least 20% equity in the property to be eligible for this. Because you already own the property and have extra equity, this is a great way to pay for your next fix and flip.
3. Home Equity Line of Credit
This is not a true loan – it’s more of a credit card. You can be issued a home equity line of credit as a fix and flip investor, based on the value of your existing property. This credit can be used based on the HELOC’s terms. Just like credit cards, interest charges are charged on the HELOC for the amount borrowed until it is repaid.
Unlike cash out refinance, a HELOC can be both a first or second lien. Because it can be a second lien, it gives you more flexibility than getting a traditional hard money loan. HELOC can only be issued on an owner-occupied primary residence. There are no restrictions on what a fix and flip investor does with the capital, but the HELOC can only be taken out on a primary residence – and not an investment property.
4. Investment Property Line of Credit
This is similar to an investment property line of credit. It is used specifically on investment properties. It’s similar to a credit card, and you only pay interest on money you are actually using. The LOC is great for short term cash needs, and can be used for both purchases and renovations.
An investment property LOC can only be used by fix and flip borrowers on non-owner occupied properties. It’s possible to get a single asset LOC, or a portfolio investment property LOC.
5. Bridge Loan
These are temporary loans used to cover the time between when the fix and flip property is bought and sold. It’s used to purchase a property, before selling another property/that property. It allows you to purchase a fix and flip property without having to sell your property first. Unlike with a hard money loan, you can’t finance a rehab with a fix and flip bridge loan.
6. Bank Loan
Bank loans and online mortgages are typically 15-30 year terms, and are used to purchase long term properties that will be occupied. Bank loans and traditional mortgages are not suitable for fix and flip investors – especially since traditional bank loans won’t be given for distressed properties.
Can Fix and Flip Investors Get Hard Money Loans?
The short answer is YES. Fix and flip investors are investors who are great candidates for hard money loans. Because these investors purchase, renovate, and sell, within 3-12 months – they are ideal for hard money lenders. Often, hard money lenders want to get their money back as quickly as possible so they can keep lending it again and again. Hard money loans are great for short term investors like fix and flip investors – because it gives the investor the chance to purchase and renovate the property in a single loan. In addition, most hard money lenders will only ask for payment on the interest – in contrast to traditional banks who will ask for payment on the interest and principal. As a result, many fix and flip investors speak to hard money lenders for capital. Many short term investors look for houses in poor condition that if renovated can sell for more than their current market value. These houses come from short sales, foreclosures, and lender owned REO properties.
Using a hard money loan, fix and flip investors can finance the initial purchase of the house and in addition – can finance the cost of the renovations. Fix and flippers get hard money loans equal to the AFTER REPAIR VALUE, which is the expected fair market value after all the construction is completed. Once a property is purchased with funds from a hard money lender, the investor can start the renovations. Typically, hard money lenders will give money in the form of stipends, or draws. It means the fix and flipper will have to float rehab costs until he/she gets money from the hard money lender. During the renovation period, the fix and flip lender only has to make payments on the interest. At the end of the loan the fix and flipper will repay the loan using the profits of the house’ sale.
Can Fix and Flip Investors Get a Draw?
A draw occurs when funds from the construction budget of a loan are allocated toward the materials and labor necessary to do construction. The real estate investor has the ability to issue draw requests when it is appropriate. These take place as a result of a sort of agreement between the contractor and the hard money lender. Once the builder is on the same page as the source of funding, progress can be made and construction will continue. The terms for a fix and flip draw have usually been settled with the hard money lender when the loan is approved.
There is no universal draw request form, but they usually tend to have similar layouts. Countless templates exist across the Internet and professional world. The general content includes lines for verification information such as signatures and dates. More notably, the amount requested is the main item to fill out on a draw request form. Often, the contractor lists an explanation to provide more validity to his request.
At its core, a draw request is a form that serves as documentation of completed repair work. Contractors may give copies of this form to sub-contractors and other affiliates, but it is necessary that the document is submitted to the hard money lender. After this has occurred, the lender reviews the draw request and decides whether to issue approval.
There are two main ways to establish the draw schedule. Some draws happen upon the completion of certain stages, which serve as progress thresholds. This system places an incentive on the contractor to make progress in order to maintain a steady flow of funds. The other method is to release draws on set intervals of time.
What is ARV – After Repair Value
Are you looking for hard money, in order to flip houses, or other commercial real estate? Regardless of what you’re planning on doing, there’s several things you need to know about. For example, how much work does the property need? Is it in a good neighborhood? What will the property be worth once the rehab/construction is finished?
Once of the key variables when looking for a loan, is ARV – or after repair value. This is an estimate of what the property is worth once all the rehab has been done on the property. The ARV is one method a hard money lender determines if the investment is a good idea or not. The investor will use ARV to determine how profitable the deal will be. The ARV is something which is determined by looking at the amount of rehab into the property, and by looking at similar properties in the neighborhood who had appraisals done.
Most investors who look for hard money loans, can get up to 70-80% of the ARV. Anything above 70% is typically considered risk, for hard money lenders. ARV is calculated by the dividing the loan amount by the ARV. For example, if your loan amount is $175k and the estimated ARV is $250k, then the loan to ARV will be 70%.
If you’re considering flipping house, rehabbing commercial property, or whatever else – then we can help you. Delancey Street is a private lender, that has many years of experience helping real estate developers get access to hard, and reliable, cash.
What if I would rather handle the work myself?
One of the most common reasons why hard money loans are selected over bank loans is because of the unique nature of the scenario. Traditional bank loans are typically used for run-of-the-mill loan requests and permanent financing needs. For example, these loans are used when a buyer wants to hold onto the property for several years or more and when the property is already in good condition. A hard money loan, on the other hand, is a short-term loan that is most commonly used to reposition the property in some way. One of the more common repositioning tasks relates to renovations.
A well-executed renovation may increase the property’s value substantially. If it is an income-producing property, the renovations may also enable the property to generate higher levels of income. If you are looking at ways to bolster profits from your upcoming real estate renovation project, it may have crossed your mind to complete at least some of the work on your own. After all, if you can eliminate labor costs from the total renovation budget and complete the same caliber of work, you could potentially save thousands of dollars or more throughout your renovation project. Before you follow through with this plan, spend time learning more about lender requirements and thinking through all aspects of this possible renovation plan.
Your Lender’s Requirements
When a hard money lender is providing you with funds to renovate a property, the lender usually wants you to contract with an approved, licensed contractor to complete the work. Documentation showing the contractor’s experience, license and insurance may even be required as part of the loan approval process. Each lender is different, and there are no hard and fast rules in the hard money lending world. Some lenders may be agreeable to letting you complete at least some of the work yourself, such as demolition or landscaping. However, most lenders will only let you take draws that are based on specific contractor quotes. Some will actually pay the contractors directly rather than run the funds through you as a conduit. If you plan to do any of the renovation work on your own, discuss this option upfront with a few lenders so that you can select a hard money lender that allows it.
Your Skills and Experience
Remember that work must be completed to code in many cases, and you may also need to obtain a permit. Some lenders specifically require you to use a licensed, experienced contractor to ensure that these criteria are met. However, if you are a skilled contractor by trade, some lenders will allow you to complete the work yourself. You may need to document your experience and prove that you are properly licensed and insured according to local requirements. Some lenders will also conduct a walk-through of the property or need an inspection after the work has been completed to ensure that the work has been completed properly.
The Issue of Timing
Remember that a hard money loan is a short-term loan. Contractors can typically complete quality work in less time. When you do the work on your own, you may have a one-man team, and this could slow down the progress of the project. You also may not be able to focus on the renovations as well as a full-time professional and his or her crew could. You must complete the work on your property within a specified period of time, and you must leave ample time for your exit strategy to be implemented. Common exit strategies for hard money loans are to refinance the property into a permanent loan or to find a buyer. Both of these processes cannot begin until the work is completed. In addition, both processes can take at least a few months of time to complete. A hard money loan typically has a balloon payment due at a specific date. While some extensions are possible with select lenders, this should not be your primary plan to rely on. Because timing is critical with a hard money loan, it may be best to let a contractor work on at least some of the project. This is, of course, if your hard money lender lets you complete the work on your own.
It seemingly makes financial sense to complete as much work as possible on your renovation when using a hard money loan. After all, doing the work yourself can keep valuable funds in your pocket to bolster overall profitability of the project. However, there are significant reasons why you cannot or should not make this your renovation plan. There may be some steps that can be taken on your own, such as landscaping or demolition. However, many other steps need to be or should be completed by a licensed and insured contractor. Your hard money lender can provide you with more information about its specific requirements.