Fix, and flip loans are short-term loans, often with a higher interest rate for investors who want to buy a property and then pay for its renovation and repairs. Then they sell the property for a profit, also known as “flipping” the property—that’s where the loan gets its name, “Fix and Flip”.
Flip loans are somewhat similar to bridge loans since they’re short-term and are borrowed until a permanent, long-term financing solution is sought. Flip and fix loans are also known as private money or hard money loans and are different from mortgage loans. These loans pay for the upfront costs of renovating and buying a property. The loan is repaid when the property is refinanced or sold.
Structure of Fix and Flip Loans
Flip loans usually consider the real asset or property as collateral and do not consider borrowers’ creditworthiness as a significant factor before approving their application. All the loan values reside in the property in question.
Fix and flip loans tend to be quite short-term, mostly ranging from 6 months to 3 years. Investors who want to use the hard money, flip loans normally decide to repay the loans with the gains they make once the property is sold off. The quicker they can renovate and sell the property for a profit, then sooner they’d be able to repay the flip loan.
How Does a Flip Loan Benefit You?
One of the biggest advantages of borrowing hard money, flip loan, is the quick access to the investment. Many flip loans can get approval on the very same day they’re applied for, and the amount is paid out in a week’s time. As opposed to traditional mortgage loans, which take about one to one and a half months for approval, this is a huge advantage.
For instance, if you intend to buy a property at an auction, where you must show proof for sufficient cash within 24 hours, you can apply for a flip loan and collect the amount to secure the property.
Why Use a Hard Money, Fix and Flip Loan?
If you want to invest in real estate for the first time, a fix and flip loan might be your answer. It can help you get quick money to invest in a property and then pay for the repair during a short span.
Many fix and flip, hard money loans tend to have a low loan-to-value ratio that’s around 70% of the property’s value with a 70% additional value of the cost of renovation rolled in.
However, the terms of a fix and flip loan may differ from one lender to another. Some lenders will give you a loan for 90% of the property’s value and a 90% additional value of the cost of repairs and renovation.
This provides the investor enough funds to buy the new property and also pay for the necessary renovations when they don’t have sufficient upfront cash.
If you’re looking for fix and flip loans on great terms, Insula Capital Group can help you. We also offer a range of other private lending options like hard money construction loans, business bridge loans, and more. Contact us today to learn more about our financing services.