Why would you want a Fix And Flip Credit Line?
Fix and flip real estate investment can be a very lucrative game, but can also be very risky business. In order to be successful, it is often necessary to be quick to pick up a property at a very low cost in order to make a greater profit when it is sold.
Trying to get finance in a hurry can however delay this process and mean a missed opportunity. This is where a fix and flip credit line can be highly beneficial. But what is this type of financing and how does it work?
What Is A Fix And Flip Credit Line?
Fix and flip loans provide a revolving line of credit that can be accessed as and when needed. In other words, it works very much like a credit facility with a store or a credit card except that it involves much larger amounts of money – $500,000 to $50 million.
How Does A Fix And Flip Line Of Credit Work?
The credit line can be used to purchase the investment property as well as materials, labor and other necessities that are required for the renovation. Interest is normally charged at a fixed rate and the loan is repayable upon the sale of the property or within the selected term.
This form of finance can be used to finance a single project or multiple projects at the same time. Successful fix and flip investors know that the ability to have several projects on the go at one time is integral to success.
Due to the nature of the industry, the revolving facility normally has a very quick closing period. They also provide the benefit of no early settlement penalties associated with other types of finance or loans aimed at property development.
How much of a credit line can I get?
The credit facility is normally based on the value of the property either before or after renovations. LTV (Loan-to-value ratio) is based on the value of the property being purchased relative to the finance that can be accessed according to this value. The ARV (After-repair-value) is based on value of the property including the cost of the renovations.
The value of the credit provided for the purchase of the property as well as the cost of the renovation is often based on percentage of either the LTV or the ARV.
The terms of fix and flip revolving credit loans can differ greatly depending on a number of factors such as the lender or the estimated completion date for the project. Commonly, there is a minimum term of 12 months to 24 months. The loan can however be repaid early due to the fact that there are no early settlement penalties.
This is ideal to ensure that the credit becomes available to be used for new investment opportunities on the horizon. The faster the turnover of a property, the greater the profit will be at the end of the day.
Where Can You Apply For A Fix And Flip Loan?
Fix and flip credit lines are not commonly available from banks or traditional types of financial institutions who offer regular types of loans without a revolving facility. The major pitfall of these types of loans is that they do not provide the flexibility of a line of credit.
Renovations may go over budget or the project may not meet the projected deadline which can result in the loan becoming due before sale. There are also early settlement penalties. If a project has been completed a few months ahead of time and before the term of loan expires, it can be a costly affair to settle the loan.
Private lenders are the best place to find business funding solutions to meet the unique requirements of the fix and flip industry. These lenders design different products to meet the varying needs of different real estate investors. Whether a credit line is aimed at financing multiple real estate projects at the same time or a single project for a first time investor, revolving credit is the most beneficial means to access the necessary funding.
Neal Business Funding is an alternative lender that offers a fix and flip line of credit to beginners. Easy application process and competitive rates will allow you to be ready with a cash offer for that next deal when it pops up.
If a specific financial product is not specifically designed to meet the needs of a specific project or business need, your private funder will tailor a loan, line of credit or make other arrangements to meet these needs.