Illinois Fix and Flip Loans
Fix, and flips were not popular until a few years ago when the housing market began recovering from the great recession. These loans have continued to grow in popularity, and more people are reaping huge profits out of them. According to figures in the public domain, the return on investment for fix and flips grew from about 20 percent in 2011 to 35 percent in 2015. In 2017, house flippers renovated more than 200,000 homes where they pocketed an average of $68,143 in profits per unit sold.
House flippers continue to benefit immensely from the recovery of the housing market. In some cases, investing in fix and flip could give you returns of more than 12 percent in a year. But despite the massive potential in this business, only a few individuals can afford to invest in it. The biggest hurdle, especially for starters, is accessing low-cost loans for their project.
For starters, fix and flip can cost a lot of money. To begin with, you will need a down payment for the home, renovation costs, and the costs of holding the house until you find a suitable buyer. It, therefore, means that you have to dig into your pocket to meet various costs such as homeowner’s insurance, property taxes, HOA fees, title search fees, recording fees, and escrow fees, and more. Considering the substantial initial cost of venturing into this business, fix and flip loans have provided investors with an easy means of raising capital for their projects.
An overview of fix and flip loans
Fix and flip loans refer to a type of financing used by short-term real estate investors to raise capital for purchasing and renovating a property before selling it for a profit. The money borrowed by house flippers is used to meet various costs such as:
Raising the down payment
The process of house flip begins with finding a suitable property. Once you find the house, you start figuring how to raise funds to buy the house. You will need to raise about 20-45 percent of the purchase price depending on the lender.
The holding cost
These are costs that the house flipper has to pay before they find a suitable buyer of the property. Examples of holding costs include HOA fees, insurance payments, and various other costs of holding the property.
The fix and flip funds will also be used to purchase renovation materials and meet the labor cost for the renovation. Even when you complete the upgrades, you will need money to put your house to the market. You will need to pay realtors helping you to sell the house and even pay for the closing costs.
Where to get financing for the fix and flip projects in Illinois
House flippers in Illinois have a variety of financing options for their projects. Some starters may consider getting a traditional bank loan to finance their fix and flip project. However, experts warn against going to the banks to get a loan to finance a fix and flip project. Here’s why.
Most of the house flippers are short-term real estate investors, and their incomes are usually seasonal. So, most of the banks won’t consider your application for a business loan to finance fix and flip project. Even when the bank agrees to offer you a business loan, their product might be costly and unaffordable. Additionally, most of the bank loans are long term, and house flippers are usually in business for just a few months.
Hard money loans for the fix and flip projects
House flippers usually look out for an alternative considering the many challenges of accessing bank loans. Hard money loan is one of the easiest ways to raise capital for house flippers. Hard money loan refers to short-term funding secured by real estate and used by investors to purchase and renovate a house. Investors use hard money loans to buy, renovate, and sell the houses within a year.
Getting a hard money loan has several advantages. Firstly, the loan can be used to finance a property in poor condition. These loans also have lower qualifications for approval compared to traditional bank loans. What’s more! An investor can access the funds with fifteen days of application. The lenders are not interested so much on borrower’s background but the value of the property.