With fix and flip properties accounting for over eight percent of the US homes sold over the last two years, it’s clear that fix and flip investing is here to stay. And, why not? With Attom Data Solutions reporting a 27.5% ROI on fix and flip properties–translating to a $66,500 profit on average–fix and flip projects are lucrative opportunities.
However, fix and flip projects require significant capital in order to purchase, rehab, and sell a property. Securing fix and flip financing through traditional means can be difficult.
Fortunately, real estate investors looking to acquire, renovate, and flip their next property have various financing avenues they can take. Below, we will discuss the top 5 ways to secure fix and flip financing, including the pros and cons for each.
5. Consumer Mortgages
Consumer mortgages are typically acquired through a bank or credit union and usually have lower interest rates. However, these home loans are designed for homebuyers who intend to occupy the property they purchase. For fix and flip investors, securing traditional consumer loans for renovating and flipping properties is extremely difficult.
For starters, consumer mortgages are highly regulated by the government and institutions like Fannie Mae and Freddie Mac, with significant oversight and strict guidelines. This often complicates and slows the lending process. Loan approvals require a stellar credit score and substantial downpayment and do not cover home renovation costs.
The slow processes, requirements, and strict guidelines are often deal breakers for savvy investors who think beyond the flip, and know the importance of fast funding and flexible fix and flip loan requirements when purchasing, renovating, and exiting a property successfully.
4. Personal Loans
If you’re new to the real estate business and inclined to work with traditional lenders, such as a bank or credit union, a personal loan is a more realistic fix and flip loan for beginners. Personal loans can range from $1,000 to $100,000 and can be used to purchase and renovate a property. These loans are better than credit cards because they offer longer repayment terms with lower interest rates.
However, similar to consumer mortgages, personal loans for fix and flip projects require a great credit score, downpayment, and a thorough business plan that convinces lenders you’ll succeed. Personal loans also come with substantial institutional oversight and longer application processes. And, if for whatever reason you fail to repay your personal loan on time, it will ruin your credit score.
3. HELOC/Refinancing
Many fix and flip beginners are drawn to refinancing and home equity line of credit (HELOC) financing options. This is because they allow homeowners to borrow against the equity of their primary residence or other properties.
HELOC and refinancing loan options:
- Often have relatively low interest rates.
- Provide funding to purchase and renovate properties.
- Avoid long and complicated loan approval processes.
- Protect investors from ruining their credit through unpaid personal loans and credit cards.
However, these avenues require you to own a property with equity already built into it. HELOCs, in particular, also carry significant risks in the world of fix and flip real estate investing. Even the most profitable flip opportunities often face their fair share of roadblocks. Whether it is poor property assessment or simply bad luck, obstacles slowing the selling process can quickly drain a homeowner’s equity or even open the door to foreclosure.
2. Crowdfunding
Crowdfunding has become a popular alternative fix and flip financing option for real estate investors. Utilizing crowdfunding platforms, investors pool resources with other investors to finance fix and flip projects. This financing approach allows investors to access capital without navigating the obstacles of traditional loan applications.
While you avoid loan application and approval pains, investors absorb the headaches typically associated with investment properties with large networks of backers. Successful crowdfunding fix and flip projects require exceptional communication, with investors forced to negotiate, compromise, and agree on business decisions with several partners. Most importantly, crowdfunding entails divvying up the profits among the pool of investors–significantly decreasing your profit and ROI.
1. Fix and Flip Financing Through Private Lenders
Private lenders provide the best fix and flip loans for beginners, real estate savants, or investment enterprises. With fewer regulations, fewer requirements, and the freedom to tailor loan options to an investor’s specific needs, private lenders are far and away the best financing avenue for real estate investors of all sizes.
Let’s take a closer look at some of the best aspects of fix and flip financing through private lenders:
Flexible Terms
Unlike strict and heavily scrutinized consumer mortgages, private lenders provide fix and flip loans with the capital necessary to purchase, rehab, and sell a property–even for investors with low credit.
Fast Approval
Speedy loan approvals allow investors to secure funding for profitable flip opportunities faster than the competition.
Competitive Rates
A fix and flip loan typically finances the construction, repair, and purchase of a property at lower competitive rates, allowing you to cut costs and increase profits.
Types of Properties That Are Loan Eligible
Unlike conventional loans, several types of properties qualify for fix and flip financing, including:
- Non-owner occupied
- Attached or detached Single Family Rentals (SFR)
- 2 – 4 unit properties
- Townhomes
- Warrantable condos
No Prepayment Penalties
While traditional lenders penalize borrowers for paying off a loan before it matures, private lenders encourage quick repayment and eliminate pre-payment penalties for fix and flip investors.
Eligible for Low Credit Borrowers
As mentioned, private brokers can design fix and flip loans for borrowers with sub 700 credit. In some cases, investors can access fix and flip loans with no money down.
Rather than obsessing over credit scores and down payments, private lenders utilize fix and flip loan calculators that take Loan-to-Value (LTV), Loan-to-Cost (LTC), and After-Repair-Value (ARV) into consideration when determining eligibility, making it easier for private lenders to say “yes.”
Metric
Description
LTV
Compares loan amount to property’s current market value.
LTC
ARV
Projects the value of the property post-renovation.
CIVIC Financial Services: Your Fix and Flip Financing Partner
CIVIC offers the flexibility, structure, and capital necessary to help your real estate business grow and succeed. Our fix and flip loan programs are the most reliable funding source for fix and flip investors looking to purchase, renovate, and rent or sell homes.
CIVIC’s Fix and Flip Financing provides:
- Competitive short-term loan options
- Up to 100% of rehab budget financing
- Up to 90% LTC
- Up to 75% ARLTV
- Asset-based financing
With streamlined, common-sense underwriting processes and expert relationship managers, CIVIC provides the knowledge, tools, and capital to help you outpace the competition and scale your business.
Ready to reap the benefits of CIVIC’s fix and flip financing?
CLICK HERE to get started today.
