Financing Fix and Flips: A Quick Guide

Real estate developers know how important it is to have the right financing for the right project. Such is the case for financing fix and flips. Fix and flips are transactions where the buyer acquires a property for a relatively short period of time with the sole purpose to sell, or flip, the home once the property has been rehabilitated. A typical loan term for financing a fix and flip is anywhere from one to nine months with some as long as 12 months, depending upon how long the repairs take place. Developers and real estate investors are constantly on the lookout for their next project and many compensate third parties to bring profitable deals to them.

Fix and Flips: How Does it Work

A typical fix and flip scenario is when a potential buyer sees a property listed well below the market value. The buyer pays a visit to the property and takes along his contractor. They make a complete walk-through of the unit taking note of what needs to be repaired and how much each repair will cost. Once they do the math on a potential purchase the buyer returns to the desk and makes an estimate on what the property would sell for once repairs are made, typically with the assistance of a licensed appraiser who will make an estimate of future value based upon the information at hand.

Once the final value is made, the buyer compares the sales price with all costs associated with financing the fix and flip, closing costs for the acquisition and selling costs once the property is sold to a third party. If there is enough profit on paper that warrants an offer on the property, the buyer makes the offer, the offer is accepted and the project moves forward.

Financing Options for Fix and Flips

We offer financing for fix and flip projects as a line of credit, a one-time fix and flip loan and for new construction. Here are the general guidelines for each but you’ll want to call me for more details about this attractive package.

To approve a line of credit, the investor must have successfully closed fix and flips in the past with at least one successful transaction within the previous two years. Lines of credit can range from $50,000 to $3,000,000 and can last for up to 12 months. For a simple acquisition, the loan can fund up to 90% of the purchase price and for a rehab project, up to 95% of the cost or 75% of the “as repaired” value. A minimum credit score of 600 is required.

For a single one-time fix and flip loan, there are no requirements the borrowers must have previous fix and flip experience and the loan sizes range from $50,000 to $3,000,000 and terms up to 12 months. 85% of the purchase price, or 15% down payment is required and up to 90%of the rehab costs can be financed up to 75% of the as repaired value. The minimum score for this type of loan is 620.

For new construction, loan amounts can range from $75,000 to $3,000,000 with a maximum 12-month term. The loan can be up to 75% of the current value of the land and the land must already have utilities and plumbing and ready for construction. The minimum score is also 620.

Is it a Good Fit?

These are some very attractive options for fix and flip transactions addressing different scenarios. Note, there are no prepayment penalties for any of these loans and there is a minimum three months of interest required on each loan issued. Whether you’re a seasoned investor or wanting to be, let us be your financing partner.