Everything You Need to Know About Fix and Flip Loans
Many individuals are beginning to realize the potential profit that can come from fixing and flipping homes, but money tends to be the number one obstacle. Before you can complete renovations on a home and sell it for profit, you need capital to purchase it. The costs associated with fixing and flipping houses can add up quickly and include repairs, contractor fees, listing and broker fees, among many others. Let’s examine key points you need to know about fix and flip loans.
Why Choose Fix and Flip Loans?
When you choose to take on the endeavor of purchasing, renovating, and selling a home, you most likely will need access to additional funds. This money is generally not secured through traditional lenders such as banks. Fix and Flip loans are approved fast with some companies responding within the same day of application. Furthermore, funds are often accessible within days depending on the company. This makes for a smooth process when placing an offer on a potential flip.
What Properties Can Be Funded Using Fix and Flip Loans?
One of the greatest advantages of Fix and Flip loans is their versatility. For example, properties ranging from multi-family residences, single family units, commercial buildings, and other types of property that do not fall under the typical residential and commercial categories can be covered. This provides nearly unlimited access to the profit you can make and gives you access to far more properties than you may have initially contemplated.
What Are the Common Fix and Flip Loan Conditions?
Fix and Flip loans generally range from anywhere between $30,000 and $1 million plus. While payment periods typically fall between six and twelve months, there are numerous lenders who provide long term loans to borrowers, which can be especially useful in the case of a major renovation or repair. Most lenders will give loans up to 75% of the current property value, have no appraisal fee, and contain varying interest rates depending on the loan provider.
What Do Lenders Consider in Fix and Flip Loans?
There are a number of considerations that lenders may examine when determining whether or not you are a candidate for a Fix and Flip loan. This includes the experience the applicant has regarding these projects, the amount of capital available, the purchase price of the property, the estimated value of the property after repair, and the potential cost of renovation. Usually, lenders will base the loan on the current property value in order to reduce risk associated with renovation.
What are Common Mistakes Made in Fix and Flip Lending?
One of the biggest downsides of flipping a home is the potential to make mistakes when taking on loans. Often, applicants overestimate the post-renovation value or do not have a contingency fund to cover unforeseen repairs. Additionally, flippers may add premium features to a home that are not fit for the neighborhood which deter buyers from paying the additional premium. Working with inexperienced contractors and underestimating the time to complete the project are two other common mistakes made in Fix and Flip lending.
While numerous television shows make flipping homes look easy, entailing buying, fixing, and selling for a major profit in a few weeks, it is a lot harder than it appears. Weigh the pros and cons and examine four key factors including finding a house at a low enough price, obtaining a reliable contractor, securing a Fix and Flip loan, and selling at a price that will not only cover the expenses, but will provide enough profit to compensate for the time invested.