Many people start off their careers as real estate investors by buying, restoring, and reselling homes on the market to make a profit. Becoming a fix and flip investor is no simple task, though. There are plenty of critical considerations to take into account when buying and restoring properties. One of the most common issues that flix and flips investors experience is financing.
While conventional bank loans offer mortgage loans, these loans are long-term and can last an average of 15 to 30 years. Unfortunately, these long-term loans can make financing more complicated for most fix and flip investors who hope to buy and turn over properties quickly.
However, fix and flip hard money loans provide an alternative to real estate investors who need fast financing and short-term loans. Keep reading our borrower’s guide to fix and flip hard money loans.
What Is a Fix and Flip Loan?
First, let’s examine what fix and flip loans are and how they benefit real estate investors. Fix and flip loans are short-term financing options specifically made to help investors renovate and sell properties for profit. House flippers often use these loans to buy foreclosed or undervalued properties.
The terms of these loans typically extend for 12 to 24 months compared to the 15 to 30 year terms of traditional mortgage loans. Although some conventional financial institutions such as banks or credit lines may offer specialized fix and flip loans, private lenders provide most of these loans. Fix and flip loans that private lenders provide are known as fix and flip hard money loans.
What Is a Fix and Flip Hard Money Loan?
What’s the difference between standard fix and flip loans and hard money fix and flip financing? The main distinction between these two loans is the source of financing. Whenever a fix and flip loan involves hard money, a private lender provided the loan.
Asset-Based Loans
Private lenders offer loans based on assets, such as real estate’s property value, rather than past financial credit histories. Since private lenders provide asset-based loans, investors who flip highly valuable properties can receive significant loans with fewer formalities.
Faster Loan Approval
Since banks require loans to go through various steps of review for approval, credit-based loans will inevitably require a longer process. As a result, real estate investors who apply for fix and flip hard money loans receive approval considerably faster than those who apply for traditional loans.
If investors need to receive financing fast to close on high-demand properties, then fix and flip hard money loans will prove highly beneficial.
What To Consider Before Applying for a Fix and Flip Hard Money Loan
Fix and flip loans can help investors become highly successful when reselling real estate properties. However, all investors should consider several different property and market factors before applying for these loans.
The Cost of Renovations
Although you can resell properties “as-is” after investing in a home, most house flippers upgrade the value of the homes through extensive renovations. The more renovations and modern upgrades flippers make, the higher the return on investment will be.
Before applying for a fix and flip hard money loan, investors should consider whether this financing will cover the cost of renovations. Taking time to plan the budget of a property’s renovations will help ensure that flippers receive a high enough return on their investment.
Selling Fees
Other expected costs new house flippers tend to overlook while applying for financing are selling fees. Costs such as realtor fees, closing costs, insurance payments, HOA fees, transaction fees, and house stages fees can all rapidly accumulate into significant expenses for investors to cover. Flippers must familiarize themselves with these fees and costs before applying for fix and flip hard money loans.
Loan Interest
Hard money loans tend to have a higher interest rate compared to conventional bank or mortgage loans. Although these rates are higher, investors also receive their hard money much faster and with fewer restrictions than bank loans. Before applying, house flippers should always examine their loan’s interest rate to determine whether they can pay back these terms.
Fix and Flip Hard Money Loan Assistance
Still don’t feel confident about starting your real estate investments with a fix and flip loan? Ask for assistance! Having a consultation with a fix and flip loan lender can help ease any anxieties or doubts about whether these loans are the best financing method for you.
Fix and flip lenders will examine your case individually and help draw out a possible future financing plan to help you feel more confident about receiving and paying back these loans.
Takeaways
Short-term investments require short-term loans. That’s why real estate investors should consider applying for fix and flip hard money loans if they aren’t already taking advantage of this financing. These temporary loans will provide investors with fewer loan restrictions, higher flexibility, faster approvals, and asset-based lending.
To get started, house flippers can speak with fix and flip lenders to evaluate their different options for financing their renovation investments. Before investors apply for these loans, they should determine the cost of renovations, selling fees, and loan interest so that they can agree to the terms of financing confidently.
We hope this borrower’s guide to fix and flip hard money loans has helped you understand these loans more thoroughly. Review this guide as you begin applying for loans to finance your investments.
Here at LJC Financial LLC, we provide highly flexible and profitable fix and flip loans for real estate investors. We offer some of the best private loans, bridge loans, and fix and flip loans available in Texas. Not only do we provide asset-based loans and flexible financing, but we also offer assistance from our experienced team of lenders to help investors feel confident.
Whether you’re a seasoned real estate investor looking for financing opportunities or you’re brand-new to the process of flipping properties, we’ve got you covered. For additional information about our loan programs or our services, visit our LJC Financial website online.
