5 Reasons You Would Use a Fix and Flip Loan

by | Jul 25, 2022

Interest in house flipping as a real estate investment strategy continues to climb. According to market researcher ATTOM, successful house flips reached their highest point in more than 15 years in 2021.

One factor in the growth most likely is the surge in house-flipping reality show programs, but another is the increasing availability of capital through what is commonly referred to as a fix and flip loan. 

Fix-and-flip loans fall into the category of hard money loans, which provide investors with a faster way of accessing the money they need to purchase, renovate, and re-sell homes in the quest for a healthy profit. Since fix-and-flip loans typically come with higher interest rates than traditional mortgages, you might wonder about their popularity. 

Here are five reasons to use fix-and-flip loans.

Shorter Term in Duration

Fix-and-flip loan services are structured to fit the needs of your investment strategy. Payback terms typically run between six and 18 months, which gives you the flexibility to plan for the purchase, renovation, and resale of properties in a way that makes the most sense for your portfolio. 

The flexible time period also allows you to adjust to changes in the real estate market as they unfold, giving you the time you need to find a seller. If the flip moves quicker than expected, and you face no early payment penalties, you can reduce your costs and improve your profits.

Faster to Funding

Individual investors and companies — instead of banks — act as lenders in fix-and-flip loans. As a result, they follow different standards and processes in comparison to traditional mortgages. Fix-and-flip lenders base their lending decisions on the value of the target property, rather than creditworthiness. Assessing a property’s potential value is a more straightforward process than verifying income, cash flow, and employment status. As a result, in many instances, real estate investors can receive their funding in a matter of days in comparison to 30 to 45 days for traditional mortgages.

Less Risk Involved

In a traditional mortgage, bank lenders hedge their risk through an interest in a property that you have chosen as a residence. If at any point you are unable to pay the loan back, you can lose your family’s home. A fix-and-flip loan works differently; these loans are secured only by the property that you have chosen for its investment possibilities.

Strategic Flexibility

Fix-and-flip loans can be adapted to different types of investment strategies. Lenders may consider your project if it involves a simple purchase of a home in foreclosure or other distressed status, with the goal of reselling it quickly after minor renovations. 

You may also be able to obtain a fix-and-flip loan for total renovation projects, where a home is completely redone inside. Finally, fix-and-flip lenders may also consider projects involving the purchase of land that has an existing condemned structure on it. The funding covers the cost of tearing the old structure down and building anew.

Beneficial Payback Terms

In most fix-and-flip loans, borrowers do not face penalties if they pay back the loan earlier. This can lower your borrowing costs, which is a real positive since fix-and-flip loans tend to carry interest costs well above market rates. Loans at Quick Lending on average run at 10% to 13% interest, with an additional 2% to 5% in origination costs.

Here’s an example of how early payback can help. Say, for example, you agree to a fix-and-flip loan at 12% interest, or 1% each month over 12 months. If you pay the loan back in six months, you are slicing the interest rate in half and paying dramatically less. The lower interest costs give you the flexibility to reduce the price of the home on the market if you need to. 

Many fix-and-flip lenders may also agree to interest-only payments during the pendency of the loan, giving you even greater flexibility. In such an instance, the principal in the loan is paid back at the time of resale.

Quick Lending Inc., serving Houston, Missouri City, Sugar Land, Pearland, and Pasadena, Texas, is a client-focused, boutique lender focused on helping you be successful. In addition to fix-and-flip loans, we provide bridge loans, rental loans, commercial loans, and owner-financed loans. We pride ourselves on the ability to make fast decisions and execute seamlessly. Through our relationships with preferred vendors, we are also able to extend guidance and support for our borrowers. Call us or contact us online to discuss your needs.