What Is a Fix and Flip Loan?
If you’re interested in purchasing, renovating, and selling property for a profit, then you’ll need a source of working capital. Fortunately, fix and flip loans are specifically designed for investors who want to upgrade a home or building before selling. Of course, there’s a lot to understand about this unique type of funding before you put in an application.
What Options Do You Have for Fix and Flip Loans?
While you can certainly apply for a traditional mortgage or a home equity loan, these options may not offer the benefits you need as a property investor. Alternatively, third-party lenders often have different criteria for a qualification that allows them to place more emphasis on collateral than credit history. This means less paperwork and faster processing times. It can also be a boon for investors who have less-than-stellar credit or who have been turned down for loans in the past.
Crowdfunding is a unique option because it relies on small donations from many people, rather than large amounts from only a few. Originally, crowdfunding was used to finance small projects, such as the production of a limited item. However, there are now organizations that help investors apply a crowdfunding model to house flipping.
Hard Money Loans
Hard money loans (also called “bridge” loans) are an excellent option for investors because they are short-term, quickly approved, and incredibly flexible. Many people avoid this type of loan because the interest rates can be very high, but if you pay off the loan quickly, this isn’t an issue. Since flipping a house is all about selling after renovations, a hard money loan can work wonders for investors.
Private lenders are typically people who lend you money without intending to make a profit from interest. As a result, private lenders are usually family members or friends who have the cash they’re willing to take a risk with. The one thing to remember is that this can put a strain on your personal relationships.
Why Choose a Fix and Flip Loan?
So why choose alternative lending instead of pursuing a traditional mortgage? For regular homeowners who plan to reside in their house for many years, the long term of a mortgage makes sense. However, when you want to make a profit, you need a loan that’s more flexible and quicker to process.
For example, a traditional mortgage can take up to 45 days to be approved, which is time you could’ve spent renovating. Alternative lending, on the other hand, can be processed in days, allowing you to jump on a business opportunity before it disappears.