Easily get into flipping real estate with a fix & flip loan to cover the renovation costs. This short-term financing option is an excellent way to increase your property earning potential with minimal outlay.
There are various types of these, from those that use your primary residence as collateral to hard money loans for those who’re unable to secure alternative financing. Fix & flip loans are “interest-only” agreements, meaning that the monthly repayments are kept to a minimum. The basic premise is that you find a house or multi-family property that needs some work—perhaps cosmetic or more serious, structural elements—take out a short-term financial agreement (AKA, a fix & flip loan), get the work done, and sell the property on. The loan amount is then subtracted from the final sale price and whatever is left over is profit.
Whichever type of fix & flip loan you go for, an evaluation of the ARV (after repair value) will be made. This, along with the purchase price, are the two most important factors that lenders will evaluate.
The amount borrowed generally can’t exceed 75% of the ARV. This can be made up of anything up to 90% of the purchase price and 100% of the refurbishment / remodeling / renovation costs. There are two elements of a fix & flip loan—the purchase and the rehab.
The purchase phase: Find your property and submit your application to an appropriate lender. You’ll need proof of income, how your deposit is to be funded, and various other documentation that we’ll advise you of when you first enquire. Very importantly, you’ll need to provide us with a business plan that details the various phases of the renovation and expenses involved. This is called the Scope of Work (SOW).
The rebab phase: Once work commences, the funds are released to cover the first phase as detailed in your SOW. As each phase is completed, you then draw down further costs from the loan. We’ll send out an inspector to oversee the finish of each stage before approving the money for the next phase. This way, you work through each rehab systematically until completion.
Due to the complexity of the different types of fix & flip loans, it’s important to take advice from a trusted legal advisor before signing any agreement.
You can use it to purchase a single-family residence, 2–4-unit properties, townhouses, condos, and multifamily real estate.
In general, a fix & flip loan can be anything from $75,000 to $2 million or more. Smaller amounts can be serviced by taking out a personal loan.
Both internal and structural work, renovations, remodeling, refurbishments, and all fees associated with the selling process.
A good credit rating will mean you get the best interest rates. However, for those with a poor credit rating, hard money loans are a good option. We’ll help you source the best option for you.
Technically, no. However, you may be able to convert your fix & flip loan to a conventional mortgage at the end of the process. We also have dedicated live-in fix & flip mortgage options available.
Typical interest rates are between 7.5%-10.5%., plus the associated fees.
House renovations are notorious for throwing up unexpected costs. The savvy flipper factors this into the SOW and potential ARV. Many fix & flippers are purchased through a business entity. This means your personal assets are protected should the project go awry. However, if renovations dramatically exceed the targeted timescales or the final sale is delayed, the interest on the loan can quickly snowball. As the borrower, these extra costs are your responsibility to pay and will eat into your final profit.