Finding Financing for Fix and Flip Investment Properties
Flipping real estate can be one of the most lucrative ways to earn a living. There is often significant money to be made in the arbitrage of buying and selling undervalued properties. Furthermore, if you can improve the real estate, you can stand to earn a lot. However, this isn’t easy if you can’t land the right financing to help you pay for it.
What Is Wrong With a Conventional Loan?
When you take out a normal mortgage for a property, you can borrow up to a certain percentage (often 80%) of the value of the property. However, this is the current value. In other words, you won’t have any additional financing for the renovations.
Conversely, fix and flip loans are based on the after-renovation value of the property. This means that you can borrow more than it is currently worth. Some loans may also have special features such as deferring payments until it is renovated.
Are There Any Drawbacks to Flip Financing?
Yes, it can be more expensive to take out a short-term loan for flipping a property. Additionally, many lenders may be wary about working with someone who is new to the business.
However, it is possible to get very rapid financing of this type. While a conventional loan may take months to closer, a property flip loan may be available within days or weeks.
How To Get Started
Some banks offer this type of loan. However, alternative lenders are much more likely to work with you for flip financing. They often have more flexible qualification requirements, especially for people who are new to flipping.
The good news is that you don’t need perfect credit to qualify. Much of the decision is made based on the expected after-renovation value of the building.
Lenders typically want to see that you have some financial stake in the project. So, expect to need to make a down payment. Additionally, they’ll want to see detailed financial plans for the renovation. This is important in the calculation of the value of the project.
Your financial track record will also be scrutinized. If you have a history of flipping houses, your prior experience will count for a lot. Otherwise, expect to need a higher credit score relatively.
Discover more about fix and flip loans. The right financing could help you secure your lasting financial success. It is an exciting and worthwhile career path.