commercial mortgages

The Beginner’s Guide to Fix and Flip Loans

House-flipping is proving to be a lucrative trend in the real estate industry. If you learn how to flip houses successfully, profits will follow. As a matter of fact, ATTOM Data Solutions reported that even though home flipping slowed during the second quarter of 2020, the average flip netted the seller a return of 41.3%. It is safe to say that fix and flip loans create opportunities for real-estate investments that potentially provide attractive returns.

A real estate investor usually takes fix and flip loans to purchase or renovate a property and later sells it for a profit in about twelve to eighteen months. If you’re thinking of getting into the house-flipping business, now is a great time.

We have compiled a beginner’s guide on how to get fix and flip loans for your real estate needs.

Understanding Fix and Flip Loans

A fix and flip loan is a short-term instrument that fills the gap between a real estate investor’s purchasing power and the property’s purchase price, plus the renovation costs.

These loans are obtained for numerous reasons, such as buying residential properties, financing renovation, repairing, and incurring miscellaneous expenses associated with the property’s ownership.

While some loans come with a six to eight months repayment period, others come with a fixed rate. These loans must be paid in instalments at a mutually agreed date. You also have the liberty to repay the hard money loan after selling the property as agreed with the investor. The repayment conditions are entirely subjective, depending on your ability to repay and your relationship with the lender.

The Process of Acquiring Fix and Flip Loans

The process of obtaining a fix and flip loan is different from getting a conventional loan.

House-flipping comes with some hidden costs, such as marketing costs. Therefore, experts recommend keeping a budget buffer to take care of any unforeseen marketing costs.

Make sure you have a detailed plan about the renovation costs and other expenses so that you spend wisely with the loan. Make sure to share the schedule and plan with your lender to build credibility and ensure transparency.

When you plan to acquire a fix and flip loan, start looking for an experienced hard money lender who understands the real estate industry’s dynamics and offers flipping loans with little to no interest.

It is also important to check when your lender can release the loan. Some commercial lenders don’t approve hard money loans unless there is some progress on your end, so make sure you do your homework before finalizing your lender.

The next step is to fulfil all the requirements needed by your lender. Find out what type of insurance you will want and whether you’ll need an LLC or not.

Finding the Best Fix and Flip Loan

Getting the approval for a fix and flip loan is not as easy as you may think. To improve your chances, prepare a thorough and systematic business plan with every small detail that you can present to your lender.

Having a plan paired with a solid credit score can help strengthen your application. If you have some experience with fix and flip loans, then that can also help increase your chances to get your loan approved quickly.

We recommend researching more about the latest trends in the real estate industry and the different commercial lenders in your region before you flip your first property. It’s always better to be prepared before starting a business to mitigate the chances of failure.