Real estate investors sometimes purchase homes, renovate them, and flip them. Significant profits can be made this way. By purchasing properties short term, investors can benefit others through fast closings, but how do they finance such transactions? There are various types of loans, including cash-out refinances and home equity lines of credit. A fast business loan is used by novice and experienced investors who may be familiar with other names, such as hard money rehab loans.
Hard money lenders aren’t as hard to come by as you may think. While home mortgages are often secured through a bank or credit union, hard money loans typically come from a non-traditional lender. They’re primarily based on the asset’s value rather than the borrower’s credit. Often investors use such a loan to buy, renovate, and sell a property all within a year’s time.
Benefits of Fix and Flip Loans
Speed is one of the greatest advantages. Getting a loan quote and funding a loan are often faster than applying for and waiting for approval with a traditional loan. A third-party appraisal may not be necessary. House flipping loans can more easily be approved for homes needing to be fixed up, especially those that banks will not finance.
However, there is no standard or fix and flip financing. The underwriting criteria, loan structure, and borrower requirements vary, depending on the lender. Loans are often based on the home’s After Repair Value (ARV), among other factors dealing with the value of the property. Hard money lenders often provide loans equal to about 80% of the purchase price. A flip loan also tends to be around 60-65% of the house’s ARV.1
How to Get Fix and Flip Funding
If you’re going to fix and flip a home, you’ll want to find a lender that offers low interest rates and fees but also one that is reputable and honest. These lenders range from well-off individuals to real estate finance companies. Always ask whether they are a lender or broker, if they check your personal credit, and what details they need on the project. You’ll want to know how many fix and flip loans they’ve done recently and where the money comes from, as well as what happens to the loan after funding.
The more planning you do in advance, the more you can benefit from the loan. Creating a business plan, estimating renovation costs, and networking with real estate investors can help you in the long run. What happens after the loan depends on the lender’s policies. For example, you may have to pay interest up front, monthly, or at the end. You also want to know whether the loan can be extended if the project is delayed or takes longer than planned.
Get a Fast Business Loan with Equity Wave Lending
Equity Wave Lending specializes in residential lending in California, including hard money loans for real estate. Serving investors since 1992, we offer short- and long-term trust deeds, along with convenient ACH deposits. Real estate loans we offer range from $50,000 to two million dollars. For more information, contact us at 888-399-8881 or submit our online contact form.