As an avid real estate investor or even someone just looking to get exposure to real estate, investing in a fix and flip is a great option to diversify your portfolio. With the various different options for funding, how do you know which one to choose? Continue reading to learn about the most popular loans for flipping houses.
Advantages of a Fix and Flip Loan
Traditional loans can take months to acquire, a fix and flip loan can provide funds in as little as within a week. When you’re bidding on a property, getting fast-funding will make or break your opportunity of scoring a deal.
Those who do not normally qualify for traditional loans are still able to get fix and flip loans in some cases due to flexible terms. A short-term fix and flip loan does not have the same requirements or procedures of a banking institution since it is funded through a private institution.
A traditional loan is tied to your personal credit and your property, meaning if something were to happen you would take a major loss. A hard money loan is backed by the property itself, giving you less personal liability if you were to default on the loan.
Diversifying your portfolio with a fix and flip property is a great way to expose yourself to the real estate market while keeping your risk level manageable. Every well diversified portfolio includes a fix and flip.
Options for Fix and Flip Loans
Hard Money Loan
A hard money loan from a private lender is one of the most common way real estate investors finance their fix and flip projects. Investors prefer these loans for their convenience and quick financing. In some cases, hard money loans are the only options for investors who have a hard time proving their income or other barriers that can prevent them from obtaining a traditional loan. Hard money loans bypass the standard regulations of traditional loans and have shorter repayment terms. With a traditional loan, when paid back early the investor would most likely incur fees. Lenders will consider the after-repair value of your property when approving you for a hard money loan, making these loans more flexible with funding.
Business Line of Credit
Business owners access a business line of credit when they need quick, short-term funding. Like a credit card, you get an approved amount of credit. There is more flexibility with a business line of credit, as lenders will pick your credit limit based on an evaluation of your business and its overall revenue. If you go over budget on your fix and flip, you can access additional funds as long as you have not gone over your credit limit.
Unlike a business line of credit, a personal loan is a type of financing that is obtained through your personal information, not your business credentials. Most of these loans require a solid personal credit score and debt-to-income ratio, as lenders will consider your credit history during approval. Although personal loans may be favorable for their rates and terms, they can be harder to get approved for, resulting in many investors using alternative ways of funding.
A bridge loan can be leveraged for a fix and flip project when an investor is in the process of selling a property and wants to purchase another one. These loans “bridge the gap” between selling your old property and purchasing your new property. Typically, these loans are secured by collateral, making them easier to qualify for than traditional loans. In a seller’s market, bridge loans can give you an advantage when you’re competing with other buyers and need quick financing. A bridge loan is desirable to a seller since it can take away financial contingencies in your offer.
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.