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The fix and flip market presents some great opportunities to savvy investors. The ability to make a generous return in a short time is very appealing, especially if you’re able to find a desirable property in a high-demand area. Real estate brokers play a very important role in this process, helping investors find great properties, secure financing for them, and make the most of their investments. Having a good understanding of the fix and flip process is crucial for helping your clients find success and building strong relationships with them.
Here we’ll cover the ins-and-outs of fix and flip loans to help brokers have a better understanding of them, along with the key strategies they can make use of to maximize their effectiveness for their clients.
Understanding Fix and Flip Loans
Let’s start by going over the basics of fix and flip loans. These are short-term loans typically offered by private lenders as opposed to traditional financial institutions, designed to cover the costs of acquiring and renovating real estate property. Unlike conventional mortgage loans, they have a much shorter loan period, ranging from 6-24 months instead of 15 or 30 years. Due to their short-term nature, fix and flip loans often come with elevated interest rates, but they make up for this by offering quicker approvals and more flexible terms that can be customized to each project. Some common examples of fix and flip loans include private loans, hard money loans, and bridge loans.
Identifying the Right Clients for Fix and Flip Loans
There are a few things you should keep an eye out for to help you identify the right investors for these loans. Ideally, the client should already have a strong investment plan and a renovation strategy in mind for their property. It also helps if they have experience with flipping or at least performing renovations, that way you can be more confident they will complete the project in a timely manner.
On the other hand, watch out for clients who have a lack of experience with renovating properties, or an unrealistic plan and budget. Also, if your client has poor credit or insufficient capital reserves, they may have trouble being approved for financing. Finally, it’s crucial that they have a clear exit strategy, or even better a backup plan in case their first idea doesn’t pan out as they had hoped.
How Brokers Can Add Value in the Fix and Flip Process
To provide the most value to clients, brokers should position themselves as the premier resource on fix and flip investments. Start by educating your clients on the available loan options, as well as how their terms might differ from conventional real estate loans. Help them compare various loan options and secure financing terms that are the best fit for their projects. You can also provide guidance on how to select properties with strong financial profiles, which will help increase their likelihood of loan approval, and advise them on how to select reliable financing partners.
Common Challenges & How to Overcome Them
Brokers can offer their insight to clients when it comes to the common challenges they may face when home flipping. Speed is incredibly important with these investments, as investors will incur more holding costs as time goes on. That’s why it’s important that your clients have a realistic timeline they can follow for the renovation schedule of the project. Equally important is having a well-thought-out exit strategy that they can put into place once renovations are completed. Also, sometimes estimates are wrong, so you may want to recommend that your client keeps a contingency fund to deal with unexpected costs or higher renovation expenses.
How to Build Long-Term Relationships with Clients
We mentioned how offering market insights can be important to build trust with your clients and helps position yourself as a go-to resource for all things investment related. It can also be good to leverage a network of professionals including contractors, tax professionals, and realtors to recommend to your client when completing deals. Having relationships with multiple lending partners can be a good idea as well, as it allows you to offer your clients multiple options when selecting financing, and other types of loans such as long-term financing.
RCN Capital
The easiest way to save on an investment is to obtain financing from a real estate 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. If you are looking to finance a real estate project, RCN Capital has competitive loan options available.