A Broker’s Guide to Fix & Flip Lending: How to Win More Business

In today’s highly competitive real estate environment, investors are turning to creative strategies to find highly profitable deals other investors might look over. One of the most effective strategies is renovating older or neglected homes in high-demand areas to achieve a solid return on investment. By providing desirable properties to underserved areas, investors can win big, but brokers are also uniquely positioned to grow their businesses by offering fix & flip loans. Investors rely on their lending partners to not only provide them with financing, but also for guiding their strategy and connecting them with resources and other professionals that help them win.

Continue reading for our guide on fix & flip lending and how brokers can win more business by expanding into this rewarding asset class.

Understanding Fix & Flip Loan Basics

Let’s start by covering the key differences between traditional mortgages and private fix & flip loans. First, these are short term loans which typically range from 6 to 24 months in duration as opposed to the 15 or 30-year term of a standard mortgage. They are also offered by private lenders who operate in the real estate space, rather than conventional lenders like banks or credit unions. These lenders are more concerned with the ARV (after-repair value) of an investment than the borrower’s creditworthiness, which means they are more flexible when it comes to approvals, and can deliver funding faster. Additionally, these loans are able to cover renovation costs on top of acquisition expenses, unlike with a standard mortgage loan which typically only covers property acquisition.

Why Investors Rely on Brokers for Fix & Flip Loans

Most borrowers simply aren’t aware of private lenders and the loan programs they offer specifically for home flipping. It is up to you as a broker to educate clients about these programs, and the benefits they offer over conventional financing. For example, most banks are not willing to lend on properties in need of repair, as they may view the investment as too risky. Private lenders, however, take the ARV of the property into consideration when approving loans. The ability to access quick capital is also a key advantage that investors can use to win more deals, and additional renovation financing means they don’t have to dip into their own personal funds.

Brokers play a bigger role than just providing financing to their clients though. Matching borrowers with the most suitable loan program is important, but they also rely on you for finding deals and refining their investment strategy. You can strengthen your position as an industry expert, for instance, by staying in regular contact with your client base. Build an email list and send them updates periodically with things like success stories and lucrative deal opportunities. Having an active social media presence also helps you stay top of mind and more likely to receive repeat business.

How to Attract Fix & Flip Clients as a Broker

If you want to win more fix & flip clients, there are a few key steps you need to take. First, identify your ideal client profile; whether it’s first-time flippers or seasoned investors. Positioning yourself as an industry expert is also an important part of the process. We mentioned having a strong social media presence, but there are other strategies you can take too. You can attend fix & flip specific networking events and join REI clubs, for example.

Fix & flip investors tend to perform multiple projects a year, so building lasting relationships with these clients can be very beneficial to your business. You can achieve this by providing value beyond the loan, guiding their strategy, and making recommendations before they ever go under contract.

Qualifying a Fix & Flip Borrower: What Brokers Should Look For

As you begin to get familiar with the fix & flip space, you will learn to identify what an ideal profile for one of these borrowers looks like. Here are a few of the most important items to consider:

• The experience level of the borrower: If the borrower doesn’t have any experience with home flipping, see if they have any previous rehab projects under their belt.

• The strength of the deal: Take time to examine the estimated ROI of the project and compare the ARV to similar properties in the same area.

• Accuracy of the rehab budget: New borrowers tend to underestimate the total cost of renovations. It could also be a good idea to leave a 10% buffer to cover unexpected costs that tend to crop up.

• Credit and liquidity: Although private lenders are less focused on the borrower’s credit, it can still be a factor in determining loan terms.

• Contractor relationships: Be sure that your client is working with reputable builders/contractors that have a good reputation. The level of quality in the work they deliver will have a major impact on the project’s overall return.

Structuring the Deal for Success

The best way to streamline your client’s fix and flip deals is by discussing what these loans entail and educating them on what to expect. Be sure to have the conversations with them about loan timeline & interest rates, and make sure to discuss how funds will be delivered. You should also work closely with your chosen lending partner to get a better understanding of how their process works. This includes what documentation they require, and how fast you can expect a loan to close. From there you can develop a repeatable loan submission process, including a document checklist for borrowers and how to deal with potential roadblocks to avoid any major delays.

Common Pitfalls Brokers Should Avoid

Speaking of roadblocks, here are some of the common mistakes that occur when submitting fix & flip loans, and how you can avoid them:

• Ignoring due diligence: Every successful deal starts with an appropriate amount of research. It’s important to double check both ARV and estimated rehab costs to ensure a deal will be profitable.

• Overpromising leverage or rates: It is also crucial that you’re realistic with clients when it comes to leverage and rates. Be sure that you are familiar with your lending partner’s process so you can provide accurate numbers to borrowers.

• Submitting deals without full documentation: Again, you should take time to familiarize yourself with your lending partner’s process. Forgetting important documents means delays in securing financing, which can lead to higher costs or even missed opportunities.

• Failing to check in with the investor regularly: As the project moves forward, you should have regular check-ins with your investors to ensure the project is moving along as planned. Your guidance might be able to save projects from falling behind schedule.

Tools, Resources, & Support You Can Offer Your Clients

If you want to give your clients the best chances of achieving success, you can connect them with additional tools and resources. These include property analysis calculators that make it easy to estimate project returns, or access to data aggregators like ATTOM Data and REI DealMaster to conduct better due diligence. It can also be a good idea to connect clients to other professionals in the real estate space. If you have a trusted contractor you can recommend, for example, this can eliminate some of the guesswork on the investor’s part. Other professionals such as accountants and tax specialists can be helpful in maximizing your client's return. You can leverage your personal network to help your clients win while also strengthening your business relationships.

RCN Capital

To help your clients maximize the returns on their next investment, partner with a lender that can provide you with the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors and lending partners. If you are looking to offer fix & flip financing to your clients, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.