Short-term real estate loans have different qualifications and terms than traditional loans. For a fix and flip investor, these loans are better suited for your portfolio’s needs. Here’s how to leverage your short-term fix and flip loan for investing.
What Are Fix and Flip Loans?
Fix and flip loans differ from traditional loans because they are offered by private investors or institutions, and usually come with a term of 12-18 months. These loans do not have the same qualifications as traditional loans, making them a top choice for investors who still wish to leverage capital for their real estate ventures. Most fix and flip loans are acquired for use on foreclosed residential properties, properties at an auction, or to finance renovations or upgrades. Fix and flip loans are great if you plan to renovate and resell a property within a short time frame.
How Do Fix and Flip Loans Work?
In many cases, an appraiser from your lender’s investment group will visit your fix and flip property and determine the value. Your after-value repair contributes to the amount of funding available to you as the lender judges if the project is worth the amount the buyer is asking. Lenders care more about the value of your property and whether it makes a good investment than your personal qualifications like your credit score. You have a 12-18-month period to sell your house on the market and repay your loan.
How to Leverage Your Short-Term Fix and Flip Loan
No Money Down
For investors that require no money down, crowdfunding platforms give you access to fix and flip loans with no cost. Although crowdfunding is a great option for those who wish to pursue peer to peer lending, these loans generally have higher interest rates than working with a local private lending institution. Investors who have no money for a down payment can leverage a short-term fix and flip loan by using crowdfunding.
Low Credit / No Credit Check
For investors who have low credit, a short-term fix and flip loan gives you the option to invest into the real estate market without having to improve your credit score. There are several loan options available for people who don’t have excellent credit.
If you default on your short-term fix and flip loan, the lender takes ownership of the property. Your credit is not affected to the extent it would be with a traditional loan, especially if your purchase the property through an LLC.
Lack of Pre-Payment Penalties
Unlike traditional mortgages, short-term fix and flip loans do not have any penalties if you choose to pay the loan back early. Traditional lending options are loaded with penalties if you try to repay the loan back early, while most private lenders will only have pre-payment penalties up to a certain period (usually 6 months).
If you’re an investor that is crunched for time to get approved on a property, then a short-term fix and flip loan is the right option for you. Traditional loans can take weeks to get approved, making you miss opportunities in the market. You can leverage a fix and flip loan to get approved for a property fast. A house that is getting auctioned off or is foreclosed on will sell quickly, and a fix and flip loan gives you the funding to acquire that property fast.
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.