Are you considering going into the business of flipping houses? Flipping houses can be a lucrative method of making thousands of dollars in a short period. In 2019, house flippers renovated more than 150,000 homes, recording an average gross profit of over $50,000 per property.
That’s a lot of houses, and a lot of money too if you think about it.
But despite it being so popular, the biggest challenge to success in house-flipping is money. Without enough cash, investors can’t buy the property nor can they fund the renovations. The good news is fix-and-flip loans can help you get your project underway whether you’re an experienced house-flipper or someone who’s still trying to learn more ropes.
What Are Fix and Flip Loans
Also referred to as residential transition loans or bridge loans, fix and flip loans are short-term loans (usually 12 to 18 months), structured to help real estate investors buy and renovate a home so they can sell it at a profit.
While many investors prefer to use more conventional loans to fund their projects, a lot of them prefer to use fix and flip loans since they are hard money loans from private investors or individuals and are much easier to acquire.
Here’s a breakdown of more benefits you can expect from fix and flip loans.
Benefits of Fix and Flip Loans
1. No Penalties on Prepayments
While banks will hit you with penalties should you pay off the loan before it has matured, most fix and flip lenders will not charge you any penalties or fines.
2. Ideal for Any Kind of Property
There aren’t any restrictions on the type of property an investor can buy using a fix and flip loan. The current state of the property doesn’t matter either. You just need to find a hard money lender who can fund the project regardless of if the house is in foreclosure, owned by a bank, or in a dilapidated state.
3. They’re Approved Quickly
Getting a fix and flip loan is a lot quicker than a loan from a traditional lending institution such as a bank. The application process doesn’t involve as much paperwork either.
Since the lender is more interested in the project instead of the person they’re lending, the loans are more focused on the investment, making it easy for the lender to approve the loan in a matter of days. However, traditional lenders focus on the personal resources and credit history of the loanee.
How to Acquire a Fix and Flip Loan
There are several steps that you need to follow to acquire a fix and flip loan.
First, you need to identify a viable loaner who can fund the project. It can be a family or friend, a financing partner, or a private investor.
Next, the financier will evaluate the project to assess whether it fits their lending criteria. They will also assess the property’s value and if they’re satisfied with the numbers, they can move to the funding phase which consists of signing paperwork and promissory notes.
The funds will then be transferred to the loanee’s designated bank account two to three days after the draw schedule has been approved.