How To Land a Fix and Flip Loan
House flipping has become a popular form of investment for many people looking to diversify beyond stocks and bonds. Unlike longer-term property investment, it doesn’t require a commitment to manage expenses and upkeep over a span of years. Instead, the investor focuses on improving the home’s value quickly and putting it back on the market. This year looks especially promising as the housing supply is depleted relative to demand in many areas, which is increasing sale prices for turnkey-ready homes. The key is finding the financing that lets you close with enough capital in your reserves to manage all the improvements quickly, so you can get it sold again before the loan expires. Luckily, there are loans built just for your purpose.
Understand Your Terms
Fix and flip loans have a variety of structures, but they’re all designed to make it easier for you to close on a property quickly and then improve it. Some loans incorporate part of the cost of improvement into the loan’s value, providing you with extra working capital but increasing the costs of the payoff in the end. Others handle the full property cost without needing a down payment, so you have more of your own capital to spend on fixing the property and updating its features. Each program’s terms comes with its own advantages and drawbacks, so take the time to find one that works with your current financial situation and timing.
Know Your Timeline for Improvement
Many fix and flip loans are structured like other property bridge loans, but the focus of their program emphasizes a clear path to resale as one of the features of the application package. Since these are both property loans and business loans, they may also require a business plan for the investment that outlines your time frame for improvement and a return to market. This lets them understand that you have a path to finishing the work before the loan comes due and it also shows the steps you will take to improve the property. It also gives you a chance to show what you think your market cap will be on a fully improved property, providing financial projections that are grounded in your work.
Choose the Right Loan Structure
Do you want to be paying interest-only monthly payments? Are you going to need six months or a year to finish work? What are the odds the property will need to be refinanced into a longer-term loan? These are all considerations that have to go into your choice of fix and flip loan, because every company offers different time constraints and repayment structures. Applying with a program that fits your business model more efficiently also increases the odds of getting approved.