Real estate can be a lucrative business, but even experts of the trade find it tricky to get their foot in the door as most properties in a hot market sell for a hefty upfront investment. That’s why many investors saw an opportunity in fix-me-upper properties, which is what you would call flipping houses.
It involves buying a fix-and-flip property for a low price and renovating it from the ground-up to sell it for a better purchase price. While a flipper is buying it low, the risk of shelling out money to spruce up the place can be high.
Not to mention, rookies often wonder where they can get the money to fund the flip in the first place. That’s where a fix-and-flip loan comes into play.
What is a Fix-and-Flip Loan?
Also called “private money” loans, a fix-and-flip loan refers to short-term loans that are secured by real estate from private investors compared to traditional loans, which are often backed by banks or credit unions.
The short-holding period can make it more accessible for borrowers, though it does come with higher interest rates, which is only natural considering the benefits and risks it involves.
Nevertheless, fix-and-flip loans allow buyers to flip old properties most quickly by providing the funds needed to kickstart the renovation and construction. In that sense, getting a fix-and-flip loan can offer the following benefits:
- Benefit #1: Fast Approval. Compared to applying for a loan in a traditional banking system, fix-and-flip loans have significantly less paperwork involved in the process. The borrower can expect the approval of the lender within a few days compared to the month-long waiting period from banks. The process is also generally more straightforward as the provisions focus on the real estate market more than the credit history of the applicant, making the conditions easier to understand.
- Benefit #2: Fund Any Property. Traditional financing institutions follow strict regulations on funding real estate investments, all of which vary according to the type of property they can support. That’s also why fix-and-flip loans are highly advantageous for borrowers as they have access to any property no matter its conditions. This means that investors have the flexibility on top of the agility to purchase old properties, give it a makeover, and then sell it as quickly as the process allows.
- Benefit #3: No Prepayment Penalties. Paying for your dues in a banking system is not as straightforward as you would think. There are apparent penalties for borrowers who submit their payments late, but there are also consequences for those who pay the loan off before the maturation date. In fix-and-flip loans, the private lenders won’t subject you to this fee.
The Bottom Line: Why You Should Consider Qualifying for a Fix-and-Flip Loan
If you’re looking to buy a neglected property and want to spruce it up so you can flip it, you may need to consider getting a fix-and-flip loan. It’s a short-term loan that links the buyer’s capital and property’s purchase price, making it easier to access the funds you need to start flipping houses.
If you’re looking to take out a jumbo mortgage in Los Angeles, or if you’re a first-timer to fix and flip loans, I am your best option to reach out to. Call me at (818) 601-2231 today to see how I can help.