Home flipping can be great for investors looking to make a quick profit in real estate, but often times it’s difficult to find a lender that can fund an ambitious renovation project. Traditional lenders like banks and credit unions tend to shy away from these projects, and their application process is extensive with long approval times. On the other hand, loans offered by private lenders can be approved faster, and have customizable terms that are better suited to home flipping. They’re an ideal financing solution for fix and flip projects for a number of reasons. Let’s cover a few of them.
The term private lending simply refers to any individual or entity that is willing to lend you their own money at a certain interest rate. They can be organizations that operate in the real estate space, or simply individual investors. Private loans are typically secured by property, which allows the lenders to be more flexible with who they lend to, the properties they lend on, and loan terms. Unlike traditional mortgages, private loans can be much shorter in duration. For home flipping, they can also provide additional funds to cover renovation expenses on top of property acquisition costs.
There are some known challenges that come with using traditional financing methods for home flipping. First, aside from their lengthy approval process, banks often have strict criteria for the types of properties they will lend on and may view a renovation project as too risky. They are less flexible with property types and customizing loan terms. Plus, mortgage loans are typically issued for 15 or 30-year periods, which doesn’t make much sense for quicker transactions like home flips.
Using private loans is typically more suitable for home flipping for a few key reasons:
When it comes to selecting which lender to partner with for your project, there are a few key criteria you should consider. It’s important to vet each potential partner carefully; ensure that they have a proven track record of financing fix and flip projects, and check customer reviews to see what the experience of working with them is like. Then, carefully examine loan terms especially with regard to repayment schedules, interest rates, and fees such as prepayment penalties. A quality lender will not only be able to fund your project, but they should also be communicative and be able to provide you with a good experience.
Your lender should be a reliable resource for real estate connections and investment planning tools. As you build a relationship with them, you may even gain access to benefits like a streamlined application process.
As with any other investment, there are some risks that come with using a private loan for real estate, and you should be aware of them before diving into a project. Most loans tailored to fix and flip investing have elevated interest rates due to their short-term nature. This means a delay with a fix and flip project will lead to severely high holding costs. It’s important to have a good plan and timeline set for your project to help ensure that you stay on track. It may also be worth having a contingency plan, such as refinancing and leasing the property until you’re in a better position to secure a sale.
The easiest way to save on your next investment is to obtain financing from a real estate lender that can get you 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. If you are looking to finance a fix and flip project, RCN Capital has competitive loan options available.