A Guide To Fix And Flip Lenders
- Is The Fix and Flip Lender Reputable?
- Are the rates competitive?
- Does the loan meet your needs?
- What are the terms of the loan?
- How quickly can the loan be closed?
- How much money do they require down?
These are a few of the questions you would want to ask before choosing the lender to work with. Getting these answers will help you make the right decision for your project. Once you find a lender you are happy with they can be a valuable part of your house flipping team by providing you with the capital for each house as you go. As you know, you will need to be purchasing the next house before the first one is sold if you want to keep a steady flow of flips going. I know I have owned up to 3 houses at one time even though we were only able to actively rehab one house at a time.
How much money do you need?
All house flips begin with actually finding the specific property. After you find the property, all you’ll have to do is to figure out the way you can receive financing for your flip. Unless you can consider yourself to be independently wealthy, fix and flip lending is vital to fund four parts of your home flip:
- The buying price of the house
- The home’s holding cost such as HOA fees, insurance payments, utilities and other fees of owning the house while restorations are ongoing
- Realtor fees and closing costs to find a particular buyer and sell the property after renovation
- Materials and labor for the restoration
The first thing you ought to know before seeking financing for flipping is that going to a bank for the fix and flip loan is pretty much a waste of time. If you’re a house flipper, then you’re also a real estate investor, meaning your income can be irregular and seasonal.
For this reason, a majority of banks will turn you down when you apply for a fix and flip business loan for your properties. Even in the rare instance a bank might be willing to do business with you, the loan products they provide may not be suitable. In general, bank loans are long-term loans meant for rental properties or to occupy the property. As you know a majority of flippers buy, restore, and sell a property in just a few months so bank financing just does not align with fix and flip lending.
Bank loans are usually hard to come by; therefore, flippers search for alternative lenders. Beginners in flipping can request for loans from their personal circle of family and friends but that may be a rough road. There are other more creative options to consider, including tapping into home equity. After you’ve built a strong reputation as a house flipper, fix and flip lending from bank lines and private investors become more of a possibility.
With the popularity of flipping houses there are actually fix and flip lenders that focus on loans for flipping houses. These alternative lenders have loan programs intended exactly for flipping houses and the terms are actually quite affordable. Down payments as low as 10% and 90 to 100% financing of the rehab costs are possible with the right lender. You could do a $100K flip with only $10K, Neal Business Funding is one of these lenders that focuses on fix and flip lending.
Things to Consider Before Requesting for a Fix and Flip Loan
Real estate investment is among the industries where you mainly learn by doing. If you have had more flips, the more you’ll learn about what works for you in terms of funding and what doesn’t. However, there are a few factors that everyone should comprehend before they apply to finance for flipping houses. By understanding these things, you’ll accelerate the borrowing process.
Formulate a Business Plan for all Flips
Fix and flips lenders primarily lend money to restore properties in poor condition. However, no one understands a property’s specifics better than you do. You’ll require to issue the lender with details about every single property that you’re planning to flip. Here, a well-formulated house flipping business strategy comes into play. Although you don’t have to write down a 100-page booklet for each property in your portfolio, you should create a comprehensive analysis of every property that entails the following:
- Analysis of the particular neighborhood where you’re purchasing the property
- Exact property address
- Timeline, strategy, and financial projections for the restoration
- Sale prices for similar homes in the neighborhood
- An expert appraiser’s present valuation of the property and approximated valuations after renovation
- Backup plan if the restoration doesn’t go according to the original plan
- Background on any person who will help you with the project such as a general contractor, home inspector, or partner
By addressing every single point in your specific home flipping business plan, you’ll encourage lenders to be serious with you. What’s more, it will make sure that you receive a large enough loan to cater for all your costs.
Precisely Estimate Renovation Costs
A majority of flippers end up not borrowing sufficient money from their specific fix and flip lender. Your entire project can be a failure if you lack adequate funds to pay off all your contractors. An excellent way to prevent this issue is by creating a comprehensive scope of work before taking the loan application. With this, you’ll have a detailed outline of every single repair you will be carrying out on the home, the timeline, and the cost.
Develop your Network
To come up with a scope of work, you’ll require the assistance of well-experienced appraiser and contractor. These parties will work together to provide you with an estimate of both the timeline and cost. Typically, they’ll quote timeline and cost within a certain range, usually 2 to 3 months, to account for unspecified contingencies. You must have an extensive scope of work prior to finding a lender, or else you won’t be aware of how much money you need to borrow. Also, the scope of work will consist of two other numbers that are significant to anyone seeking a fix and flip lending: after-repair value (ARV) and loan-to-value (LTV).
One final thing to keep in mind before taking the loan application is that real estate is also a career where connections are essential. A majority of real estate investors borrow cash for their projects and also invest in other individual’s projects. Therefore, the people you meet could eventually be lenders or partners for your next deal.
Fix and Flip Lender Options
After you’ve narrowed a particular property and carried out some research on the condition, as well as repairs you’d wish to do, it is time to think about your fix and flip financing options. Depending on your credit profile and flipping properties, some options are preferable compared to others.
Friend or Family Loans
Personal connections can be an option for fix and flip funding. Your uncle or even cousin could be your fix and flip lender. This is not a method I recommend as if anything goes wrong, then you may have a family quarrel for years to come. The holidays may never be the same again!
An uninsured personal loan is an extremely flexible financing product. When you apply for a personal loan, just like other personal business loans, you can utilize the funds for just about any reason, including funding a fix and flip. To qualify for any personal loan, you’ll require a credit score that’s above 650.
Hard Money Loans
These hard money loans are basically non-bank loans provided by private investors or individuals. In general, hard money lenders have relatively lower qualification requirements and can offer to finance for flipping within one or two weeks. Hard money lenders deal with less qualified borrowers; therefore, they charge interest rates that are slightly higher than a bank. Hard Money Loans for flipping houses are a good alternative as you will get the money quickly and they are designed for just the type of project you will be doing when flipping homes.
There’s a wide range of private lenders, as well as online platforms that deal with fix and flips hard money loans. Neal Business Funding is one of the hard money lenders you can find online. Just like other hard money lenders out there, we usually extend the loan in sections. Initially, you’ll be provided with the money for buying the house and the initial set of renovations. After the contractor finishes initial repairs, you’ll then receive the cash for the next set of restorations, and so on.
Business Line of Credit
If you have been flipping properties for some time, the likelihood of bank funding at times opens up. Although conventional bank loans aren’t ideal for fix and flip financing, business lines of credit can provide investors with financing for flipping. This strategy is most suitable for experienced flippers who have a history of regular income and successful deals.
The Bottom Line on Fix and Flip Lenders
A lot of people want to be real estate entrepreneurs or build their portfolio of investment properties. However, they lack access to adequate funding for flipping. Luckily, there are numerous options for these fix and flip loans. At Neal Business Funding, we provide the business loans and financial loans that you need for your business to flourish.