What Are the Benefits of Fix and Flip Loans?

fix and flip loans flipping properties renovate resell real estate

Are you a real estate investor? Are you considering the benefits of fix and flip loans? 

As more and more people get into house flipping, getting a fix and flip loan is becoming more popular. And they may be easier to get than you think for your real estate flips. 

Here's what you need to know about the benefits of fix and flip loans for property investors. 

What Are Fix and Flip Loans? 

Fix and flip loans are designed to help real estate investors who want to purchase a property, fix it up, and sell it for a profit. These are usually short-term loans, lasting roughly between six and eighteen months. Fix and flip loans are used most commonly when an investor seeks to purchase a property at auction or foreclosure

While a construction loan is typically used for putting up an entirely new building, fix and flip loans can incorporate construction needs as well as renovations. 

The interest in the fix and flip loans are typically higher than that of traditional home loans. And the collateral with fix and flip loans is the property itself. With home loans, collateral includes the property but also involves the borrower's personal credit. 

Fix and flip loans offer a number of unique advantages. 

1. Fast Approval 

The amount of time it takes to get a fix and flip loan is fairly short compared to traditional loans. This is because they come from private investors instead of a credit union or bank. 

The application process for a fix and flip loan is quick. You'll need to present a plan showing how you can pay off the loan after the property has gotten renovated. The lender is primarily interested in the project more than they are the person they're lending to. 

You can expect to get approved for a fix and flip loan within a few days. There is also a faster, seven-to-ten day closing period. 

2. No Pre-Payment Penalties 

With traditional loans, you could get penalized if you try to pay them off before the maturation date. However, most fix-and-flip loans don't involve this penalty. If you think pre-payment penalties could decrease your profit, consider looking into fix and flip loans. 

3. Secure Investment 

The home itself is your collateral in a fix-and-flip loan. If for some reason you aren't able to turn a profit on the sale, the lender could take ownership of a home. With traditional loans, you'll need to worry about your personal credit and property if it goes into default. 

4. Variety of Properties 

The condition or type of property you want to renovate has no bearing on whether or not you can get a fix and flip loan. By contrast, a traditional bank loan will have strict restrictions on the type of renovation they'll fund. If you're looking to finance a home in a state of disrepair that has the potential to become a gem, a fix and flip loan could be an excellent option. 

5. Repairs Are Covered 

When you purchase a property you plan to flip, you're probably going to spend a significant amount of the loan on construction and renovation. Fix and flip lenders generally set up a loan reserve in order to cover the costs of repairs. 

This can take away a lot of pressure from builders. They won't have to worry about paying out of pocket for payments or repairs. 

6. Structured Specifically For Flipping Projects 

Another important advantage of fix and flip loans is that they're structured specifically for flipping projects. Most of these get accomplished within a year. This is a span of time that the majority of banks and credit unions won't agree to. 

When you apply for a loan that is tailored toward the type of work you're doing, you'll have a greater chance of success. This can also help your budget and financing to stay organized for that period. 

7. Flexible Terms 

Traditional loans from banks and other lenders are subject to certain regulations, processes, and structures. These must be followed to the letter. 

If you want more flexibility with your terms, or if you can't get approved by a traditional lender, you can still have success getting approved for a fix and flip loan. 

8. Increase Your Buying Power 

Compared to traditional loans, fix and flip loans have a lower downpayment. This means you can increase your buying power, as well as your potential to turn a big profit on real estate flips. Leverage your low down payment now! 

Getting a Fix and Flip Loan 

You can speak with other flippers about finding a private lender. Ask about their experience. What kind of pricing did they get? Was there a fast turnaround? You can also ask prospective investors for references. 

It's important to do our research and make sure you're working with a reputable lender. Once you've found one, however, it's worth it to produce whatever paperwork is required to reach a satisfactory agreement. 

When you apply for a fix and flip loan, you'll need to submit bank statements demonstrating that you can cover the down payment and closing costs. You may also need to draw up a purchase contract and supply a list of past flipping projects. In addition, you may need to provide property documentation and a down payment. 

If the lender thinks your project is worthwhile and your portfolio is solid, you could be on your way to a very profitable property project. 

Building Up and Flipping Over

Unlike traditional loans, fix and flip loans can be a fast and flexible way to finance flipping a property. With the right lender and the right renovation, you could be reaping the rewards of your real estate investment in no time. 

Don't stop getting smart about your loans and property investments now. For more great advice on securing loans and property flips, check out the rest of our blog today. It's time to profit properly from your properties!

Bootstrap Business Blog Newest Posts From Mike Schiemer, Partners, And News Outlets