If you're like most people, you have probably heard of fix and flip loans but aren't exactly sure what they are or what benefits they offer. So if you're interested in learning more about this financing option, keep reading!
In this blog post, we'll discuss the following:
- Concept of Fix and Flip Loans
- Fix and Flip Loans Before and After the Pandemic
- Best Ways to Access Fix and Flip Loans
- Benefits Associated With These Loans
- Are Fix and Flips a Good Choice for Beginners?
- How Groundfloor Can Help with Flipping Houses
- Conclusion
Concept of Fix and Flip Loans
Fix and flip loans are a standard kind of investment in real estate. House flipping is a venture in real estate that involves the purchase of homes that are inexpensive, then “flipping” them (renovating, fixing, and otherwise improving them) to sell at a profit.
Fix and flip projects are one of the most lucrative businesses you can engage in. They offer many benefits, such as fast approval times, competitive interest rates, and the ability to use the funds for any purpose related to the renovation project. However, the financial risk is quite significant, especially if you are a beginner.
Fix and Flip Loans Before and After the Pandemic
Before the pandemic, fix and flip loans were relatively easy to obtain. Lenders were more willing to take risks, and borrowers had a good chance of being approved for a loan if they had a solid business plan.
However, the pandemic has changed the landscape of fix and flip lending. Lenders are now more cautious, and as a result borrowers typically must have a higher credit score and more equity in their property to be approved for a loan. In addition, lenders are now requiring borrowers to have a larger down payment, as well as reserves to cover any potential challenges that may arise during the flip.
As a result, it is now more difficult to obtain a fix and flip loan than it was before the pandemic. However, with careful planning and a strong business plan, it is still possible to obtain the financing you need to succeed in this competitive market. Fix and flips still remain one of the best areas where you can invest if you are interested in real estate.
Best Ways to Access Fix and Flip Loans
If you're a real estate investor looking to fix and flip properties, you have to consider the cost of the mortgage combined with utilities, insurance, taxes, and renovations. These factors add up quickly, so you’ll need to find the best way to access the financing you need.
There are a few different ways to go about this, each with its own advantages and disadvantages. We'll outline the three most common ways to get a fix and flip loan and discuss the pros and cons of each.
- Traditional Lending: The traditional way to go is to choose a bank loan. Getting approved for a bank loan is not easy at all and requires loads of documentation, verification, high-interest rates, and plenty of hours before approval. Your credit score also plays a huge part in ensuring your loan gets approved. If you want to flip using the traditional banking method, it will cost more than if you were buying a home to live in. Flipping is viewed as a risky endeavor by many banks, which can make it harder to get financing from one.
- Non-bank lenders or Private Lenders: The best place to get fix and flip loans for beginners can be from private lenders. Other flippers can be a great help in this area. With more people opting for non-bank lenders, fix and flip loans from private lenders such as Groundfloor can help if you want to purchase property but lack the funds to make it work.
- Crowdfunding sites: Crowdfunding sites are another way to get the funds you need for your fix and flip project with no money down. Such sites pool together funds from many individuals to finance the investment that you have in mind.
Benefits Associated With These Loans
Fix and flip lenders facilitate access to funds for beginners, allowing everyone to have an equal chance at investing. Flip home loans can be used in different ways, and their benefits include:
- Flexible terms: Fix and flip loans for new investors are great because of their flexibility. If you were to get a loan from a credit union or bank, you would have to follow strict regulations, processes, and rules. It also typically takes a long time before the loan is approved. Flip loans from non-bank lenders are more flexible with the terms of the loans, and there are usually fewer stipulations attached.
- Fast approval: Commercial fix and flip loans are approved fast. These loans take a short span of time to be approved, which means if you have the intention of buying a certain property, you could acquire it within a shorter period, especially when market competition is high. This also means you get the chance to capitalize on current property prices in your local market, as lenders usually are concerned about whether the property will be easy to sell after renovation. Lenders ease the path when you give such platforms a clear picture of how you plan to pay back. These loans can be approved quickly, and the closing period is faster than other options.
- Controlling the mortgage rate of the buyer: Flip funding providers allow you to construct, repair, and purchase the property. This funding option comes with a lower interest rate compared to traditional lending options. Because of this, it is possible to offer the buyer a better price, which in turn allows the property to sell faster.
- Types of Properties: Different properties that qualify for a fix and flip real estate project could be residential or commercial. The condition or type of property you want to get doesn’t lower the chances of getting the loan approved. If you sought a loan from the bank, there are very strict terms and conditions regarding the funding of the property. If you plan on fixing a promising property, you should settle for fix and flip loans.
- Pre-payment penalties: Traditional lenders would penalize you should you pay the loan off before it matures. These kinds of prepayment penalties don’t typically exist in non-bank fix and flip financing.
- Eligible Bad Credit: Fix and flip loans can be given to those with bad credit, making this type of real estate investment one of the best ways to make money.
Are Fix and Flips a Good Choice for Beginners?
Fix and flip investments are a good choice for a beginner getting into real estate investing, or for seasoned investors looking for new projects. Hard money lenders for flipping houses can be used to finance different projects, but to find them you need established platforms to connect with lenders.
Before selecting a property to flip, you need to be realistic about the condition of the property and the amount of work required. It's important to have a clear vision for the finished product, but it's also important to be realistic about the time and money required to get there. Once you've done your research and you're ready to take on a project, there are a few key pointers to keep in mind:
- The cost of flipping houses can fluctuate, so getting the best fix and flipping hard money lenders or sourcing from a flexible platform is essential.
- Learn as much as possible about the local market before you start.
- Connect with other flippers, especially the ones with good experience. These experienced flippers can guide you with their knowledge and experiences.
How Groundfloor Can Help with Flipping Houses
Fix and flip properties can be financed using Groundfloor. This hard money lender for flipping houses offers many different financing options to ensure that you find the right loan structure and terms for your fix and flip project. Groundfloor offers simple solutions and can even extend 100 percent financing in some cases.
You can also take advantage of the Groundfloor platform to invest in real estate projects and begin building wealth. You can start investing with as low as ten dollars per project, and Groundfloor investors have historically enjoyed 10% average annualized returns. The platform has been designed to be as user-friendly as possible, which allows people to get familiar with investing and understand the real estate industry better.
Conclusion
Fix and flip loans are an essential tool to gain access to properties you want to renovate before selling off at a profit. Platforms like Groundfloor willingly offer loans even for beginners, making it an ideal place to start when looking for hard money loans for flipping houses.