Flip or Flop, Lone Star Flip, Chicago Flippers, Phoenix Flipped, and so on. There are countless HGTV shows dedicated to showcasing the fix and flip investment strategy. The shows are entertaining to watch to see how the creators transform each property through renovation. One aspect that is rarely discussed, however, is financing.
The money side of buying, renovating, and reselling properties may not be as glamorous as the demolition, design, and build segments. But it’s certainly necessary for everything to fall into place. And the component that makes everything work is generally a fix and flip loan.
What are Fix and Flip Loans?
Fix and flip loans are short-term real estate loans meant to help an investor buy and renovate a property with the goal of reselling for a profit, generally in less than 18 months. Some investors use lines of credit or more conventional loans for these purposes, but fix and flip loans are specifically funded by private investor groups or individuals. A few of the different types this form of financing include hard money loans, crowdfunding, and individual lenders.
Pros and Cons of Fix and Flip Financing
If your goal is to turn a property around in under two years, there are several advantages to fix and flip financing:
- Fast funding — When you’re making a real estate deal, you need money fast. And a fix and flip loan can deliver quick access to the funds necessary for your deal.
- Flexible terms — Fix and flip loans are not subject to the same rigid requirements and processes as traditional loans.
- Less risk — Traditional loans are backed by your property and personal credit profile, but hard money loans are backed by the property for which the loan was granted.
But these loans don’t come without a few downsides.
- Higher interest rates — Fix and flip loans come with higher interest rates than conventional loans. But you may be able to make interest-only payments, lowering your monthly and overall costs.
- Shorter terms — These types of loans will always have shorter terms than conventional loans. This only becomes an issue if your project takes longer than planned or you have trouble selling the property.
How to Get a Fix and Flip Loan
If you want to get a fix and flip loan for your next real estate project, you’ll need to provide the lender with as much information as possible about the potential property you plan to flip. You will have to disclose certain documents, such as the sales contract, documentation of other projects you’ve completed, and your financial records.
You don’t necessarily have to have experience flipping properties to get a loan. Investors will, however, want to take a look at your credit even though your personal property isn’t being used as collateral. When choosing your lender, make sure they have a positive track record of building strong and lasting client relationships. Chances are, this won’t be your last fix and flip experience.
Want to Learn More About Fix and Flip Loans?
If you’re interested in a fix and flip loan, CAB Capital would be happy to start a conversation about how this particular lending vehicle can help you achieve your goals. We love to help real estate investors and even have some funding options for financing up to 100%! We offer clients custom-matched financing solutions that are fast and flexible. With access to more than 150 products from over 67 different lenders, we are sure to find something to meet your needs. Contact us today to get your questions answered or to learn more.