Fix & Flip Loans
Investing can be tricky, but knowing what type of loan to choose doesn’t have to be. Hard Money Lender, LLC is a reliable facilitator, whether the capital sought is in the hundreds of thousands or millions of dollars. There's a variety of investment properties that could be financed with an investment property loan. Some of these include:
- Long term rental properties. With many people exiting the housing market, there are more and more people looking to rent. Consider looking for an investment property near a college or university where there will be students looking for housing.
- Short term vacation rental properties. Buy that dream retirement home now and get to enjoy it on vacations while it generates income the rest of the year! (Check with your tax professional about limitations on your own use of investment homes.)
- A home purchased near your primary residence. Do you already own a home and don't intend to sell or rent it? If you purchase another property, you will need to obtain a second home mortgage or an investment property loan. Unless you are near a resort or vacation community and your additional property is near your primary residence, it typically must be financed by an investment property mortgage.
What is a Fix & Flip loan?
It’s a short-term financing solution typically used to fund the purchase and repairs of an investment property usually for 1-12 month periods. The name comes from investors, house flippers, and developers practice of purchasing investment properties with the intention to fix it up and sell it for a profit, also known as “flipping” it.
What's different from an acquisition loan?
Fix and Flip is where the lender provides funds for both the purchase and the rehab of a property. Acquisition loans are funds solely for the purchase, while the borrower funds any construction costs. A common use for this loan is to purchase land and a building, and then begin renovations through a series of construction draws.
Is cash-in-hand necessary?
Most lenders require a down payment of at least 10 or 20% of the purchase price. Having “skin in the game” motivates investors to complete their project and in turn reduces the lenders risk of foreclosure.
What are the terms?
Normally these are short–term projects, meaning up to 12 months. When using hard money, a lender will look at the scope of the work for the project and the expected time on market once it’s complete and ready to sell.
What are typical interest rates?
Because these are short–term financing loans, interest rates tend to be higher than a traditional bank. Some private and hard money lenders offer rates as low as 7 or 8%, however these low rates often require borrowers to have investing experience. Sometimes an upward rate adjustment to mitigate risk associated with either a particular project or the borrower’s financial situation is necessary. An average interest rate for a fairly standard project will likely be around 12%.