In the past few decades, thousands of people have secured their future with short-term property investments. You can make a 10-20% profit within six months to a year by buying a distressed or run-down home, doing it up, and selling it for a higher price. To get started, you’ll need financing. Fix-and-flip loans are often best because they are made specifically for short-term investors.
These loans are secured by your property, so you can access them even if your FICO score isn’t perfect or if you don’t have an extensive credit history. Since they only last between six and 18 months, you won’t pay a lot of interest. Read on to find out more about the advantages of hard money loans designed for people who flip properties.
What Are the Benefits of Fix-and-Flip Loans?
Getting the right kind of financing is crucial for your success. A loan that doesn’t suit your needs might delay your property purchase, cost you too much, and make it more difficult for you to run your business effectively. On the other hand, a good loan can help you scale your earnings because you’ll be able to take on several projects at once and therefore increase your profits.
When you get a fix-and-flip loan from a reputable provider, the terms will be flexible, so they’ll suit your individual project. What’s more, both the price of your property and the cost of the renovations will be covered. You’ll be approved very quickly, which allows you to buy homes as soon as they become available. This is crucial, especially in competitive markets.
Tailored to Short-Term Investors
Traditional mortgages, which are available at many financial institutions including local banks, aren’t suitable for short-term investors. Instead, these financial products are designed for people who want to either live in their property or rent it out, so they often last for 15-30 years. A person who flips properties only keeps each unit for 6-18 months only, which is why they need a special kind of funding.
A fix-and-flip loan is tailored to this kind of investor. The interest rate might be slightly higher, but the overall expenses will be much lower because you’ll pay back your entire balance after a few months.
Cover the Cost of the Renovations
Many people believe that they can’t invest in property because they don’t have enough money to cover the cost of the renovations. Distressed properties are often in bad condition, so you might have to spend a five or even six-figure sum doing them up. But with a hard money loan, this isn’t a problem because the refurbishment costs are included.
Once you’ve purchased your property, your lending company will hold back the remaining balance in a reserve fund, which is meant for renovations. Whenever you need money, you request a draw. When you’ve fully renovated the building, you can sell it and then pay back the loan company. Because your property is now worth significantly more, you’ll be able to make a sizeable profit.
Flexible Terms and Fewer Restrictions
Traditional loans are often quite rigid, and you might have to pay a penalty if you’d like to pay them off early. Fix-and-flip loans have more flexible terms, and there are several options. At Turning Point Lending, we provide our short-term investors with three options. The cheapest one is the 5-Month Disposition Program, which is suitable for people who have short projects and need up to $2 million in funding.
Most of our lenders opt for the Traditional Program because the loan duration is 12 months, and the maximum LTC is 90%. However, those who don’t want to pay interest while their project is ongoing can choose the Deferred Interest Program, which allows them to pay everything at the end. As you can see, there are options for virtually every short-term investor.
The average time for a traditional mortgage to get approved is two to six weeks. But in a competitive property market, you might not have that much time. Many homes might be sold within a few days or even hours, so you need to act fast. A fix-and-flip loan helps you to do just that because you can get approved almost right away. As soon as your title policy is approved, you can get funding.
If you’re a new property investor and you’ve never had a loan before, you might want to speak to your lender before you start looking for properties. The more you know about the process ahead of time, the easier it will be for you to follow all the right steps and get approved.
Allow You to Scale Your Business
People sometimes wonder whether they have to get funding for their project if they already have enough money to complete the transaction without any help. You might be worried about taking on debt because you’ve been told that it is always bad or even dangerous. This isn’t true, and a fix-and-flip loan can be a wonderful tool for investors.
Remember, you’re not signing up for a mortgage, which will require repayments for the next 30 years. Instead, you’re simply getting funding for a project that will be completed within a year or two. By taking out a loan, you can increase your profits because you’ll be able to work on two or three projects at a time. This means that you can make more money with a much smaller investment.
What Interest Rate Can I Expect?
At the moment, the average mortgage rate in the US is between 6 and 7%. However, hard money loans are a little more expensive because they are designed for the short term and because the lender is taking on additional risk. Distressed and run-down properties are typically less valuable than the houses and apartments traditional home buyers purchase.
Despite this, you’ll pay much less interest because your loan will only last for a few months. For example, if you take out a 12-month loan for $500,000 at 10% interest, you’ll pay $50,000. In contrast, a homeowner who takes out the same amount at 6-7% will pay hundreds of thousands over the course of their 15-30-year mortgage.
How Do I Get Started?
If you’re ready to start your fix-and-flip business, reach out to a hard money lender like Turning Point Lending. We will help you analyze your financial situation to determine how much money you can borrow and at what interest rate. People who have an excellent FICO score and previous experience with flipping properties might be able to benefit from the best interest rates available.
However, beginners or those who don’t have much credit history will have to pay slightly more at the start. Once you’ve improved your credit score and built up a positive relationship with us, you’ll gain access to better interest rates and therefore improve your profit margins.
Fix-and-flip loans are excellent tools for short-term property investors because they cover the value of the property as well as the cost of the renovations, they can be accessed quickly, and the terms and conditions are flexible. If you’d like to scale your business and make more money, a loan is the best way to go. Send us a message at Turning Point Lending to find out more about our loans and to apply.