Here’s Why Bridge Loans Are Perfect for Fix and Flip Investing

Fix and flip investments are a smart way to get started in the world of real estate investing. Flipping offers attractive returns in a short-time frame, making it perfect for beginner investors who don’t have much capital to work with. These returns can also serve as the perfect launchpad for higher-value and more long-term investments. However, securing financing for your fix and flip project can be a challenge, and standard 30-year mortgages don’t make much sense when you’ll be reselling the property shortly after acquiring it. Instead, you would be better off securing financing through a short-term bridge loan. Want to learn more? Here’s why bridge loans are the ideal solution for fix and flip investments.

Understanding Fix and Flip Investing

In order to understand the best way to finance a fix and flip investment, it helps to be familiar with all the different steps of the home flipping process. The goal of a fix and flip is to make key renovations to a property that will add maximum value and bring the home up to date. Home flips are often completed in a very short timeframe, with most falling in the 3-6 month range from start to finish. If you want to maximize your returns, you will have to be strategic with both your time and money so you can complete renovations quickly and avoid paying unnecessary holding costs.

When you are looking to finance a home flip, your first thought may be to go to a local bank or another traditional lender like a credit union. These loans are perfectly suitable for acquiring homes you plan to live in, but they may not be ideal for a fix and flip property. For starters, a 30-year term doesn’t make much sense for such a short project. Mortgage loans also require an extensive, time-consuming application process where neglected properties (like most fix and flips) may not qualify for financing. But most importantly, these loans do not provide any funds for renovations, which is where investors generate their returns.

Financing Real Estate Investments with Bridge Loans

This is where bridge financing comes into play for real estate investors. Bridge loans are a form of short-term financing offered by private lenders who operate in the real estate space. They are typically issued from 6-12 months as opposed to the 15 or 30-year term of a standard mortgage, which makes them perfect for fix and flip investments. Bridge loans have a far less extensive application process, which is important since time is of the essence with such a short project. Plus, bridge loans can provide funds for renovations on top of acquisitions, which means you won’t have to dip into your personal finances.

Advantages of Using Bridge Loans in Fix and Flip Investments

There are many benefits bridge loans offer specifically for fix and flip investing. We already mentioned how these loans can be approved faster, and how they also provide funds to cover renovation costs. Often times, it can be difficult to qualify for financing with a distressed property, especially when working with a traditional lender like a bank who deem them risky investments. Working with a private lender means having a partner that already has experience in the real estate investing space. Many offer interest-only loan options which helps free up cash that may be needed in the renovation process. They may even be able to provide you with resources to help maximize your returns, such as connecting you with real estate professionals.

Key Consideration When Using Bridge Loans

While using bridge loans for fix and flip investing can be very profitable, there are some things to consider when making such a large investment. First, you need to understand that these loans come with higher risk as they typically have elevated interest rates, and must be paid in full at the end of the loan term. If you aren’t fully confident you can sell a property in that time, or secure more permanent funding, you are better off avoiding this type of financing. Be sure to take the time to compare your various investment and financing options, so you can choose the one that best fits your investing goals.

RCN Capital

Do you have a real estate project you would like to obtain financing for? 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 an investment with a bridge loan, RCN Capital has competitive loan options available.