How Fix and Flip Loans Can Help You Invest in Real Estate

If you’re interested in flipping houses, you’ve probably seen many of the fix and flip reality TV shows. They make it look easy, don’t they? With some funding and the right property, flipping houses seems like a simple way to make a profit. However, the reality is that if you’re not careful when managing the property, you can lose a lot of money in the process. Ease this with a fix and flip loan.

Read on to learn more about this alternative funding for your real estate project.

The Fix and Flip Loan

Conventional mortgages from banks and credit unions are long-term loans with low interest. On the other hand, a fix and flip loan is a short-term loan at a higher interest rate. These loans are given out by private investors or lending companies to provide real estate investors with hard money for fix and flip projects.

The differences between a traditional loan and a fix and flip loan are as follows:

  • Fix and flip loans are for six to 12 months. A conventional loan is for 15 to 30 years.
  • Fix and flip loans are funded quickly, while conventional loans take longer to close.
  • With a fix and flip loan, no credit check is required, as compared to a conventional loan.
  • The interest rate for a fix and flip loan is from 12% to 21%, while points are between 3% and 6% of the loan amount.
  • There is little or no required documentation for a fix and flip hard money loan.
  • A hard money loan is anywhere from 60% and 75% of the property’s value.
  • A down payment for a hard money loan is up to 40%, while a conventional loan may not require a down payment.

Advantages of fix and flip loans

Speed is a major factor when it comes to securing a property to fix and flip. There will probably be other bidders, which makes the process even more urgent. With a fix and flip loan, you can have your money within in a week, while a bank loan will take about 30 days. In this time, the property will most likely sell to a buyer who comes up with cash the quickest. Not only are hard money loans quick, they’re easy to get. In many cases, the company or private investor won’t ask for proof of income, your credit score, or your debt-to-income ratio. Also, the condition of the property is not an issue. What lenders look at is the strength of the loan and the trustworthiness of the borrower.

Downsides to fix and flip loans

A fix and flip loan does come with some drawbacks. Interest rates are higher and the shorter loan term can make it difficult for new flippers to make a profit in time to pay off the loan. If the loan isn’t paid back, the borrower loses the property. If you’re an inexperienced flipper, it is recommended to partner with someone who is experienced. This way, you will reach your goal on time.

Should You Use a line of credit

If you’d like to use credit to secure your funding, rather than using the property, you can get a personal loan up to $100,000. However, there are credit and income requirements for this type of loan. If you have good credit and a good income, you can take out a personal loan, save money on interest, and get the funds quickly. Another advantage of using a line of credit is that it will always be there. This means you won’t have to apply for a loan every time you want to flip a property.

Is a Fix and Flip Loan Right for You?

To find out if this is the right type of loan for you, you’ll need to answer these four questions:

1. How low below market can you pay for the property? The wider the gap in the what you pay for the property and what you sell it for brings a bigger profit. Keep this mind.

2. How much will you pay in fees and interest on the loan? Until you can sell your property, you are responsible for making loan payments. While you don’t know when you’ll sell the property, try to get an idea of how much you’ll be paying in the meantime.

3. How much will it cost to repair the property? It’s a good idea to get quotes before purchasing a fix and flip home. Keep in mind that home repairs often taken longer than expected and usually end up costing more.

4. How much can you sell the property for? To find this out, do some research. See what similar homes in the area have recently sold for. You can also consult a real estate agent.

Learn More about Fix and Flip Loans

To learn more about getting a fix and flip loan, contact IMC Money. We will answer all of your questions and help you get a hard money loan for your fix and flip property.