A couple in their fix and flip property looking up renovation instructions

What Are the Benefits of Fix-and-Flip Loans?

Flipping property can be a very lucrative undertaking for individuals and institutional investors. To facilitate the venture, fix-and-flip loans help investors bridge the gap between their capital and the property’s buying price and costs of renovation. However, like any other rewarding investment, it is best if you have solid information and preparation to take the necessary precautions.

What are fix-and-flip loans

Fix-and-flip loans are short-term credits intended to help real estate investors to acquire property, renovate it, and resell it at a profit. They allow investors to fix up an outdated or unappealing property and make proceeds from selling it. Sometimes referred to as “private money loans,”, fix-and-flip loans are offered by private investors or an investor fund rather than banks and credit unions.

How can you use a fix-and-flip loan?

You can use your fix-and-flip loan in several ways, including:

  • Purchase a property: You can purchase a property from moving or distressed owners at a discount and resell it after doing some renovations.
  • Repair: Loans for flipping houses allow some reserve funds for the renovation of old or outdated houses to make them more appealing to potential buyers.
  • Construction: Fix-and-flip loans also allow you to demolish an existing structure and reconstruct it with the intention to put it back on the market.

The benefits of fix-and-flip loans

Flexible terms

Loans from banks and credit unions are accompanied by strict rules, processes, and regulations that must be followed. Moreover, banks must take you through time-consuming and unpredictable loan approval processes.

Fix-and-flip loans offer more flexibility with the loan terms without too many regulations attached. Moreover, you can still get approved for a fix-and-flip loan when other lenders cannot approve a loan for you.

Fast approval

Compared to traditional loans offered in banks and credit unions, fix-and-flip loans take a significantly shorter time to get approved. This allows you to make good on your intended purchase and beat the competition. It also offers the chance to take advantage of compelling property prices in the real estate market.

When it comes to fix-and-flip loans, the lender is more concerned about the property being bought and renovated than the person receiving the loan. This means all you have to do is present a feasible plan of how you will manage to pay back the loan after renovating the property, making the process much faster than in banks.

Fix-and-flip loans typically take a few days to get approved, with a faster closing period of seven to ten days.

Control your buyer’s mortgage rate

Since fix-and-flip lenders allow you to purchase, repair, and construct the property, you can lower the cost of repair and allow your buyers lower prices than similar properties. That way, you can offer an incentive to purchase the home by offering a lower purchase price to the buyer.

A variety of properties are allowed

The type or condition of the property you intend to purchase does not influence your chances of getting a fix-and-flip loan approved. Banks, on the other hand, have strict limitations on the type of property and the condition they are willing to finance. 

If your plan to repair a property is elaborate and promising, a fix-and-flip loan is an ideal choice. Regardless of type or condition, a lender is likely to finance a property that is likely to turn into a gem after renovations.

No pre-payment penalties

Typically, banks and other traditional lenders penalize you if you pay them before the loan matures. Fix-and-flip loans generally exclude this penalty, offering you the opportunity to retain your profit after the sale of your property. 

Other costs of flipping property

Besides the costs of renovation and construction, there might be additional costs when flipping property. Each property is different, and there are differences in the types of costs you are likely to encounter. You can expect to encounter the following expenses when dealing with a fix-and-flip property:

  • The purchase price of the property
  • Renovation or construction costs
  • Holding costs such as utilities, insurance payments, and HOA fees
  • Costs of property sale such as realtor fees, staging costs, and closing costs

If you are considering taking a fix-and-flip loan, it is essential to understand these costs and have a good estimate of how much you should ask for when applying for the loan.


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