Fix and Flip Loans

Fix and Flip real estate investments are a great way to increase your income, so long as you have the patience, perseverance and ability to execute properly. But how do you get the financing you need to get the investment property you want? A traditional mortgage may not be the best solution - most banks don't even want to take on a project like this. And even if you can get a bank to finance the purchase of the property, a traditional mortgage usually won't cover the cost of renovation.

This is why real estate investors often turn to fix and flip loans. Also known as rehab loans, fix and flip loans aren't designed to just cover the cost of the home; rather, these loans have a value that is based on the after repair value (ARV) of the home, and they take into account the cost of renovation.

How Does a Fix and Flip Loan Work?

One of the biggest issues with many loans is the collateral, and a lot of beginning real estate investors don't have collateral to work with. A fix and flip loan eliminates this issue by using the investment property itself as collateral, making the loan much easier to secure. After that, investors pay out the remainder of the loan in installments as they renovate and sell the property.

What are the Benefits of a Fix and Flip Loan?

There are a lot of remarkable benefits to a fix and flip loan. From speed to ease to flexibility, it's no wonder so many investors turn to them. Let's examine the benefits in greater detail:

• Speed: Where a traditional mortgage can take upwards of 45 days to close, a fix and flip loan can be approved within five minutes, and it can close as quickly as a few days.
• Low Upfront Cost: A hard money lender, such as Walnut Street Finance, will often finance up to 100 percent of your closing costs and points. Plus, they can set up an interest reserve for you, meaning you won't have any payments to make for the first six months.
• Easy and Flexible: With minimal paperwork, the application process is a snap, and loan amounts are very flexible - often anywhere from $100,000 to $2.5 million.
• Fewer Restrictions: A traditional mortgage comes from a bank, and a bank legally has to place a lot of restrictions on the loan. A hard money lender, on the other hand, understands what you're trying to achieve and will help you reach your goal.
• Shorter Terms: There's no need for a 30-year mortgage when a hard money lender can set up a fix and flip loan for a much shorter period - and often with no early repayment penalties.

Are There any Risks for a Fix and Flip Loan?

Like any investment, there are risks if projects don't go according to plan. A fix and flip loan comes with a higher interest rate than a traditional mortgage. That is to be expected, as the lender is also taking on more risk. At the same time, fix and flip real estate investment is designed to be a short game, so if you can keep things on track, the higher interest rate shouldn't be an issue and you can actually end up with a better return on your investment at the end than what a traditional loan would offer.

Talk to a Hard Money Lender

To get a complete understanding of what goes into a fix and flip loan, contact a reputable hard money lender like Walnut Street Financial. They'll walk you through the process and get you started on an exciting career in real estate investment.