Top Financing Solutions for Fix and Flip Deals: What Brokers Need to Know

Fix and flip deals are one of the most popular types of real estate investments, especially in today’s competitive market environment. They provide a great return in a relatively short amount of time, and investors can even put in some work of their own to take their returns even further. Securing financing for fix and flip investments is a bit different than with a standard mortgage or a rental property, however. It’s important to understand the various financing options available, so you can recommend the best solution to your clients. Continue reading as we cover the ins and outs of fix and flip financing, and what brokers need to know about funding these investment deals.

The Financial Foundation of Fix and Flip Investments

The main differentiator when financing fix and flip deals is timing. Loans for home flipping typically have a shorter loan period, ranging from 6 to 24 months depending on the timeline of the project. As a result, fix and flip loans also tend to have higher interest rates than their long-term loan counterparts. Quick access to capital is also key with these investments, as opportunities don’t tend to last long on the open market. Fix and flip loans also provide additional funds to help cover renovation costs, on top of the standard financing for acquiring the property.

Exploring Financing Options for Fix and Flip Investments

Investors have a few options to choose from when financing a fix and flip investment:

• Hard Money Loans: A hard money loan is a type of financing that is backed by an asset, such as the property being financed. These loans are typically offered by lenders that operate in the real estate space, putting less risk on the part of the lender.
• Private Lending: Private lending simply refers to financing offered by any private entity that is willing to let you borrow money. It can be a friend, family member, or a lending organization, and can be a great way to finance a fix and flip deal.
• Lines of Credit: A line of credit allows a homeowner to borrow against the equity they have built in a property they own. They function similar to credit cards in that there is a set limit to the amount of funds that can be borrowed, but they will have to be repaid within a certain timeframe.
• Bridge Loans: Bridge loans are short-term loans offered by private lenders, designed to “bridge” gaps in one’s finances. These loans already come with shorter loan periods, making them perfect for fix and flip investments.
• Cash-Out Refinancing: A cash-out-refinance loan is another way to utilize homeowner equity, by restructuring an existing mortgage while pulling cash out of the property. They effectively act as a new mortgage for a home, letting the borrower access the existing funds.

Matching the Right Financing Options to the Investor’s Needs

There are a few key criteria that will affect which solution is the right fit for an investor. Start by evaluating the investor’s financial situation, such as their credit score, income, and current liquidity. Having equity built in a property is also a great way to finance a home flipping project, depending on the investor’s comfort level with this solution.

Loan structure is also important to consider. Private lenders offer interest-only loans where the borrower make monthly interests payments, and the principal amount is only due at the end of the loan period. This gives investors crucial funding at the right time to help complete their project. Regardless, it’s important to understand the investor’s long-term goals and risk tolerance, so you can help choose financing that aligns with their values.

A Broker’s Role in Simplifying the Financing Process

As a broker, your job is to provide advice and solutions to help simplify the financing process for your clients. Staying updated on lender products and guidelines, and educating your clients on the intricacies of these changes, is one of the best ways to achieve this. Offering guidance on project specifics is another way to provide value your clients. However, you can also build relationships with lenders to help streamline the financing process. You may gain access to faster loan approvals, customized loan products, or even preferred terms. This same concept also transfers to other professionals such as contractors, appraisers, and home inspectors.

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.