The 4 benefits of Fix and Flip loans
Buying real estate, fixing it up, and selling it quickly is often a profitable recipe. However, a key component of this recipe for success is access to capital. If you don’t have enough funds but are interested in rehabbing a property, a hard money lender that offers fix-and-change loans could be an excellent financing option. These loans are structured in such a way that they allow a buyer to acquire the property quickly and have access to a reserve of funds for construction and renovation costs.
Buying real estate, fixing it up, and selling it quickly is often a profitable recipe.
Advantages of Fix and Flip Loans
There are many advantages to fix and change loans and the demand for this source of financing is constantly increasing in the real estate investment industry.
Four key benefits include:
- Fast approval: Getting approved for a fixed and reversible loan is a much faster process compared to the traditional banking system. If the borrower has submitted the requested documents, a private lender can approve the loan in a couple of days, while a traditional financial institution can take at least a month. In addition to the significantly longer wait time for bank loan approvals, the borrower will need to submit numerous documents and meet multiple conditions as part of the process.
- Any Property: Properties in different states of condition may qualify for a fix-and-change loan. Whether the property is bank owned, short sale, foreclosed or in a dilapidated state, a borrower is likely to find a hard money lender willing to finance the deal. Again, a borrower may not have the option of financing these types of real estate opportunities with a bank. Banks are very risk averse and have strict rules about what type of property they can accept as part of their loan portfolio.
- Zero Prepayment Penalties – If you get a loan from an established bank, you may be subject to penalties if you get a chance to pay off the loan before the due date. This is called a prepayment penalty. Most fix and flip lenders will not subject you to this fee.
- Covered Repairs – When you buy a property with the intent to remodel it, a significant portion of your budget will be spent on construction and renovation costs. A fix-and-trade lender will typically set up a loan reserve that will cover the costs of repairing the property in addition to interest. This can take a lot of stress and pressure off builders and developers as they don’t have to worry about spending out of pocket money on repairs or payments.
Teaming up with a solid lender who understands your property, the local real estate market, and is willing to help you through the acquisition, construction, and sale process is vital. When choosing a hard money lender, keep the following in mind:
- The lender must have enough experience in the industry. A private lender with deep roots in the real estate investment market will not only be able to offer you a better deal, but will also have many contacts that will come in handy along the way, from recommended settlement companies to preferred permit issuers and other vendors. . This can turn out to be a great asset as speed, quality, and efficiency are the name of the game in the fix and flip world. The less time you need to research companies and contractors, the more money you’ll have in your pocket.
- Check the history of the lenders to make sure they are genuine and have a good track record. It may be worth taking a closer look at lenders who entice borrowers with “trial rates” or a “no docs” underwriting process. As with most things in life, if it seems too good to be true, it usually is.
- Lastly, you should check what previous or current customers have to say. Is the lender responsive and knowledgeable? How many loans do you have on the street? Do they have good ratings on Google or BBB? Just as the lender performs due diligence on its borrowers, borrowers must, in turn, perform due diligence on the hard money lender. It’s a partnership and both parties need to be strong and committed to the process to ensure success.
