Fixing and flipping homes is an excellent way to step into the world of real estate investing or to diversify your growing portfolio.
If you’re new to the process, you might be wondering how exactly you can secure funding for a fix-and-flip project.
Fortunately, today’s investors have loan solutions tailored to their unique scenarios.
Fix-and-flip loans provide short-term financing to cover the purchase of the property and the cost of renovating it.
In this article, we’ll take a look at how fix-and-flip financing works and how you can qualify for a loan.Get Started with Park Place Finance
How do you fund a fix-and-flip project?
Financing a home purchase may not seem too difficult for an investor, but what about the additional financing you need to renovate and repair it?
While there are multiple methods for approaching a fix-and-flip project, the simplest and most straightforward approach is using a fix-and-flip loan designed for this type of project.
Fix-and-flip loans cover the costs to purchase your property and flip it to sell or rent within an appropriate timeline.
How does a fix-and-flip loan work?
The ideal fix-and-flip loan scenario is supported by a hard money lender such as Park Place Finance.
Hard money fix-and-flip loans don’t have to meet the Consumer Finance Protection Bureau’s (CFPB) documentation requirements, so they don’t require borrowers to share their income or employment verification.
Instead, they’re based on the after-repair value (ARV) of the property.
While other loans can be used to fix and flip properties, such as home equity loans or personal loans, these loans rely on your financial history and strict requirements.
Personal loans also are notorious for their high-interest rates. This isn’t a sustainable, long-term solution for a real estate investor.
Hard money loans are a perfect match for real estate because they rely on the value of your project and your relationship with the lender.
What is meant by ‘hard money’?
“Hard money” refers to a type of loan that is secured by a tangible asset, rather than relying primarily on the borrower’s creditworthiness or financial history.
Key characteristics of hard money loans include:
- Commonly associated with real estate investing, and especially fix-and-flip projects and bridge financing
- Often are short-term loans, with long-term options available depending on individual scenarios
- Secured by the property
- Fast approval
- Maximum flexibility
Hard money loans are funded by private lenders and rely on a strong partnership between lenders and borrowers.
Real estate investors often need to move quickly on their next deal. A hard money loan helps them secure the financing they need to complete a project and pay back the loan or refinance into a long-term solution.
What types of investor scenarios are ideal for a fix-and-flip loan?
Fix-and-flip loans can be used for both single-family and multifamily residential investment properties.
They are ideal for investors who are planning to purchase a property, renovate it, and sell it for a profit or rent it out to earn rental income.
If you qualify for the financing to purchase and renovate a property, fix-and-flip loans offer the flexibility and speed to begin your project.
How to qualify for a fix-and-flip loan
To qualify for a fix-and-flip loan with Park Place Finance, you must meet the following requirements:
- Provide the as-is value, rehab budget, and ARV
- Share your project details and exit strategy
- Get an appraisal to assess the property’s current value
- Provide proof of down payment and reserves
- Minimum credit score of 660
- Pay closing costs and fees
We can generally loan up to 70% ARV or 90% loan-to-cost (LTC). Subject to property and borrower qualifications.
To calculate the ARV of the property, research local sales figures of similar properties in the area. Then, multiply that figure by 0.7 and subtract the cost of estimated repairs.
The resulting figure is the maximum buying price you can pay for the property to make a profit.
Steps to get a fix-and-flip loan
Remember, the goal is to find a hard money lender with whom you can build a real partnership.
This partnership starts with research and effort on your part. If you bring a thorough, detailed plan to the table, you position yourself as a trustworthy and reliable borrower.
This can set you up for the success of many deals to come.
1. Do your research
What does it mean to “do your research”?
Research is the foundation of a successful fix-and-flip project, involving several key aspects, including:
- Local real estate market research, including current trends, property values, and demand
- Selecting properties that align with your goals and considering the location, condition, and resale value
- Determining your budget, including purchase price, renovation costs, and sale price
2. Create a detailed plan
Once you have performed your research, create a comprehensive plan.
Your plan and exit strategy can make or break the success of your deal. In this plan, include the scope of work, budget, timeline, and exit strategy.
3. Find a reputable hard money lender
The most crucial component of your deal is the lender you choose.
From the beginning, establish open and clear communication with your lender. Discuss your project in detail and ask questions about their lending process, expectations, and timelines.
Finally, emphasize your intention to build a partnership with the lender. A transparent and professional relationship can lead to future collaboration on additional projects.
Apply today with Park Place Finance
Are you ready to begin the fix-and-flip loan process?
Park Place Finance is a direct hard money lender, helping investors access financing for projects across the U.S. with in-house capital in as fast as three to five days.
We have funded over $1 billion in loans and have been in business for more than 17 years.
In addition to fix-and-flip loans, we also offer:
- Ground-up construction loans
- DSCR loans
- Bridge loans
When you choose to work with us, you can rest assured that a team of real people will be dedicated to funding your deal as quickly as possible.
To get started, share some details with us through our simple online form, or give us a call at 866-407-1599.Get Started with Park Place Finance