Are you looking to diversify your portfolio with a fix and flip project? With all the options to choose from, it can be hard to decide which loan is the right one for your project. Here’s how to choose the best short-term fix and flip loan.
Types of Fix and Flip Financing
Hard Money Loan
A common type of fix and flip financing is a hard money loan acquired from a local private investment group. Private investment groups will already be familiar with the local market, giving you the upper hand when trying to sell your home. They also have connections to trustworthy contactors in the market, which can be leveraged in your fix and flip. A private investment group offers loans that are not associated with federal loan programs, allowing you to acquire money even if you do not qualify for traditional loans.
A bridge loan is used to close the gap between selling your current property and buying a new property. When investors do not yet have the profits from the sale of their current property, they can use a bridge loan to “bridge the gap” and acquire another property. Bridge loans are secured through using your current property as collateral. Even though these loans will often have higher interest rates because of their short-term nature, investors prefer them for their flexibility and quick financing.
Individual lenders are at a scarcity, but if you have a connection to one it’s a feasible option to acquire a fix and flip loan. Individual lenders are often more negotiable than private lenders. You can start by asking around to see if any of your trustworthy connections are willing to be an individual lender for your fix and flip project.
What’s the Best Fix and Flip Loan for Me?
Not every loan will be right for your project, so how do you choose the best short-term fix and flip loan? Depending on your project and your financial situation, your lender may be able help you choose the right loan.
Tips for Getting a Fix and Flip Loan
Find a Local Lender
A local lender can assist your fix and flip investment by already knowing the local real estate market and having connections to the best nearby contractors. A local lender will also be familiar with the trends in the immediate market and be familiar with pricing.
Find a Reliable Lender
Finding a reliable lender that has experience with many successful flips is a necessity for a successful project. You should research the lender’s portfolio and ask any questions you have regarding their past experience.
Count the Costs
Before you apply for a short-term fix and flip loan, you need to have an accurate estimate of how much funding you will need to complete the project. Upon applying for a loan, your lender will want to know how much capital is needed for your investment project. Having a clear estimate of the cost of your project will help you secure a fix and flip loan.
Schedule the Project
Creating a detailed schedule of your fix and flip project will help your team to stay on track and complete the project within the loan period. Having a lack of planning will result in your project going over schedule, which can leave you with less profits. Your lender wants to know that your project has a clear timeline so that the loan can be repaid during the intended time period.
Ask About Construction Draws
Some lenders have construction draws where you are unable to access funding until a work in progress is complete. Be sure to ask your lender how quickly they release funds for construction if applicable to the loan.
RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. Connect with us today to discuss your next real estate investment.