If you are looking to invest in real estate and renovate properties for a profit, you have probably heard of fix & flip loans. These loans are specifically designed for real estate investors who buy, renovate, and sell properties quickly. For beginners, understanding the ins and outs of fix & flip loans is the first step toward getting started in this lucrative field.
What Are Fix & Flip Loans?
Fix & flip loans are short-term loans used by real estate investors to purchase and renovate properties. These loans are typically offered by private lenders or companies like Coastal Capital Lending.
Unlike traditional bank loans, fix & flip loans focus primarily on the property’s value rather than the borrower’s credit history. This makes them an ideal option for investors who need quick funding to close on a property and start renovations.
In general, fix & flip loans allow investors to secure the necessary funds for both purchasing the property and covering the renovation costs. After the property is renovated and sold, the loan is repaid.
Why Choose Fix & Flip Loans?
Fast Access to Funds
Time is critical in real estate investing. The longer you wait to secure financing, the greater the risk that someone else will purchase the property before you can. Fix & flip loans provide quick funding, often within days. This allows you to act quickly on profitable opportunities.
High Leverage
Fix & flip loans typically provide higher leverage than traditional loans. Investors can secure up to 90% of the property’s purchase price and 100% of the renovation costs.
This high level of financing makes it easier for you to invest in properties. It allows you to take on projects that require significant renovations without having to front all of the capital yourself.
No Income or Credit Checks
One of the most attractive aspects of fix & flip loans is that lenders typically do not require a thorough credit check or proof of income. Instead, lenders focus on the property’s value. This means you can qualify for funding even if your credit history is less than perfect.
At Coastal Capital Lending, we focus on the property’s value and make it easier for experienced investors to access financing quickly.
Flexible Loan Terms
Hard money lenders like us often offer more flexible terms than traditional banks. For example, we may allow for deferred origination fees, so you can pay them at the end of the loan term instead of upfront.
This provides more flexibility in managing your cash flow during the renovation process. We also provide loans with no prepayment penalties. This gives you the flexibility to pay off the loan early without incurring additional fees.
Fast Closings
Traditional bank loans can take weeks or even months to process. On the other hand, fix & flip loans are designed to be fast. Coastal Capital Lending can close loans within 72 hours once we receive a clear title so that you can move quickly and get started on your project.
How Do Fix & Flip Loans Work?
Step One: Property Selection
Before applying for a fix & flip loan, you need to find a property that has the potential to make a profit. Properties in need of renovation, such as fixer-uppers or distressed homes, are ideal candidates. Make sure you have a clear understanding of the property’s market value and the amount of work required to fix it up.
Step Two: Application
Once you’ve selected a property, you can apply for a fix & flip loan. The application process is usually quick. You will need to provide some basic information about the property, including the purchase price, estimated renovation costs, and the property’s after-repair value (ARV).
Step Three: Property Valuation
Hard money lenders will evaluate the property to determine how much they are willing to lend. This may involve an appraisal or a Broker’s Price Opinion (BPO).
The lender will assess the property’s current market value and its potential value after renovations are completed. This helps determine the loan amount.
Step Four: Loan Approval and Funding
If the lender is satisfied with the property’s value and your renovation plans, the loan will be approved. The funds will be provided in stages: one portion for the purchase of the property and another for renovation costs.
Coastal Capital Lending focuses on providing up to 90% of the property’s purchase price and 100% of the rehab costs. This way, you can move forward without worrying about securing additional funding for your project.
Step Five: Renovation
With the financing in place, you can begin the renovation work. This is the most important part of the fix & flip process. The goal is to add value to the property. Therefore, it’s attractive to potential buyers once the renovations are complete. Make sure to stay within your budget and timeline so that you can repay the loan on time.
Step Six: Property Sale
Once the renovations are complete, you can list the property for sale. The goal is to sell it quickly for a profit. After the sale, you use the proceeds to pay off the fix & flip loan. Any remaining profit is yours to keep.
What Are the Requirements for Fix & Flip Loans?
Each lender has different requirements for fix & flip loans. However, most hard money lenders focus on the following factors:
- Property Value: The value of the property is the most important factor when applying for a fix & flip loan. Lenders want to make sure that the property has enough value to cover the loan amount in case of default. Coastal Capital Lending focuses on the property’s after-repair value (ARV) to determine the loan amount.
- Experience: Many lenders prefer working with experienced real estate investors who have a proven track record of successful fix & flip projects. Having prior experience helps demonstrate that you are capable of completing the renovation and selling the property for a profit.
- Loan-to-Value Ratio: Hard money lenders often offer loans based on a loan-to-value (LTV) ratio. This is the ratio of the loan amount to the appraised value of the property. Most fix & flip loans offer up to 75-80% LTV. However, this can vary depending on the lender.
- Exit Strategy: Lenders want to know how you plan to repay the loan. A clear exit strategy, such as selling the property for a profit or refinancing into a long-term loan, is necessary to secure financing.
If you are considering a fix-and-flip project, consider borrowing through Coastal Capital Lending. We offer fast closings, high leverage, and minimal documentation, so you can focus on what matters most—turning a profit.
Contact us today to learn how we can support your next real estate investment.
