Fix and flip properties attract both experienced investors and people looking for a way into real estate. Television and social media make the work look quick and fun. In reality, a lot goes into flipping a house and making money on it, and very little of it is cosmetic.
The first step comes well before any work begins. You need funding. Here are three tips for financing a fix and flip.
1. Choose a private lender
Private lenders operate with less red tape than conventional banks. A bank has to fit your loan into rigid guidelines, and a house that needs heavy renovation often doesn’t fit.
A private lender can look at the deal on its merits: the property, your plan and your track record. That usually means a quicker decision and terms that can be shaped around the project. To pick a good one, see our 3 qualities to look for in a private money lender.
2. Ask for a hard money loan
Hard money loans suit flips because they’re secured by real estate. The value of the property stands behind the loan if something goes wrong, which is why lenders can approve them more readily than unsecured or income-based loans.
They’re also short-term, which matches the life of a flip. You borrow, renovate, sell and repay. If hard money is new to you, start with everything you need to know about hard money loans.
3. Know your numbers and your competition
This tip matters as much for success in the market as it does for getting financed. Before you apply, you should know:
- What interest rate and fees you’ll pay on the loan
- How much the repairs will cost
- How long the work will take
- How quickly you need to sell to make a profit
- What comparable homes nearby are selling for
A lender will ask about all of these. More to the point, they tell you whether the deal is worth doing. If comparable sales don’t support your resale price, no loan will fix that.
What a lender will want to see
Expect to provide a purchase contract, a renovation budget, your expected sale price and proof of insurance. We go through the full list in what is needed to secure a hard money loan.
Ready to get started?
Sachem Lending’s fix and flip loans cover purchase and renovation for qualified investors. Contact us today or apply online.
