Navigating Real Estate Financing: The Distinct Roles of Fix-and-Flip Loans vs. Bridge Loans

Fix-and-flip loans and bridge loans both are quick, short-term sources of financing real estate investors can secure from a hard money lender.

But beyond these similarities, fix-and-flip loans and bridge loans each serve very different purposes.

Let’s explore the differences between fix-and-flip and bridge loans so you can make the best decision for your next property.

What is a fix-and-flip loan?

Fix-and-flip loans provide the funding for the purchase of a property and the renovations or repairs.

Investors use this type of loan to flip a house and sell it for a profit in a relatively short time frame.

Fix-and-flip loans streamline the process for investors by incorporating both elements of their project—the purchase and the repairs—so they don’t need two separate sources of financing.

Fix-and-flip loan scenarios

Ideal fix-and-flip projects generally begin with a property that is undervalued or in need of significant repairs.

The idea is that with the right upgrades or renovations, the property can be sold for a substantial profit.

Fix and flip loans are structured with the following scenarios in mind:

• Quick opportunities in hot real estate markets
• Properties that are below market value
• Revitalizing properties in up-and-coming neighborhoods
• Estate sales or foreclosures
• Renovations aimed specifically at boosting the property value
• Real estate investors who want to diversify their portfolios

Successful house flippers have an eye for spotting the potential in overlooked properties and for recognizing market trends and buyer preferences.

Typical rates and terms

Fix-and-flip loan terms generally range from one to two years, which reflects the ideal timeframe for maximizing fix-and-flip profits.

Loan approval is largely based on the after-repair value (ARV) of the project, as well as the investor’s flipping experience and credit score.

Park Place Finance accepts an ARV of up to 75%, with competitive interest rates.

What is a bridge loan?

Bridge loans are designed to “bridge the gap” between an immediate need for cash and the ability to secure permanent financing.

In other words, if a prime opportunity pops up on the market, an investor might leverage a bridge loan to purchase the property while they arrange financing from another source.

This “other source” might mean the profits from the sale of a current property, or another loan solution.

Bridge loan scenarios

Imagine if you had just put a current property up for sale, and the perfect next property hits the market in your ideal location.

You know that the property won’t be on the market long due to the price, but you don’t have the funds yet to purchase it.

A bridge loan from a hard money lender can get approved and funded in a matter of days, granting you time to purchase the property, sell your other property, and pay off the loan.

Bridge loan scenarios and strategies include:

• Covering the down payment on a new investment property
• Purchasing a property at auction
• Avoiding sales contingencies
• Seizing time-sensitive opportunities in hot markets
• Bridging the gap between the end of one loan and the start of another

Traditional sources of financing can’t be secured quickly enough to fulfill the investor’s needs.

Typical rates and terms

Bridge loan terms generally range from one to two years.

Park Place Finance offers competitive interest rates.

Key differences between fix-and-flip loans vs. bridge loans

The major differences between fix-and-flip loans and bridge loans are the purpose and funding.

Let’s break down the full differences between the two loan types.

Purpose

• Fix-and-flip loans are designed for investors who want to purchase a property, renovate it, and sell it for a profit.
• Bridge loans provide quick, short-term financing for a property purchase or refinance until the borrower can secure permanent financing.

Funding

• Fix-and-flip loans are essentially bridge loans with a renovation component.
• Bridge loans are purchase or refinance only, and don’t have the renovation component.

Financial metrics

• Fix-and-flip loans often emphasize the property’s ARV, which considers the expected market value post-renovation.
• Bridge loans typically focus on loan-to-value (LTV) ratio, which compares the loan amount to the appraised property value.

Approval process

• Fix-and-flip loan approval often involves a detailed review of the renovation plan and the borrower’s experience with similar projects.
• Bridge loan approvals may be more focused on the property’s current value and borrower’s credit, with less emphasis on project specifics.

Tips for preparing to apply for your investment loan

No matter which loan type best suits your needs, the following tips can help you prepare to apply.

Create a detailed project plan

If you are applying for a fix-and-flip loan, prepare a comprehensive renovation plan that details your projected costs and timelines.

For bridge loans, outline your plan for the property and how you intend to repay the loan.

Have a clear exit strategy

Clear exit strategies are important for hard money loan approval.

Lenders ultimately want to know your plan for repaying the loan, whether it’s through the sale of a property, refinancing the loan, or another strategy.

Demonstrate your experience

Detailing your previous projects, successes, and lessons learned is especially important for fix-and-flip loans.

Your lender will want to understand your experience with real estate investments and renovation projects.

Prepare the required documentation

Hard money lenders don’t have strict documentation requirements as banks do, but they still will need to see personal identification, bank statements, and relevant property documents.

Carefully review the loan terms

Before signing, make sure you fully understand the loan terms, including the interest rates, fees, and repayment schedule. Ask your lender for clarification if needed.

Secure financing for your next project with Park Place Finance

Park Place Finance is a direct hard money lender with in-house capital.

We lend nationwide to provide the ultimate flexibility for our borrowers.

Each borrower has access to a dedicated account executive who will offer guidance and support throughout the loan process and beyond.

We offer the following loan products:

• Fix-and-flip loans
• Bridge loans
• Debt service coverage ratio (DSCR) loans
• Ground-up construction loans

To get started, complete our quick online form or give us a call at (866) 407-1599.