Fixing and flipping houses is a great way to make money, be your own boss and get away from the typical 9-5 job. When you first get your feet wet in this industry, you’ll likely need a lender to borrow you some money.
Fix and flip loans work differently than traditional bank loans, so it’s important to do your homework and be informed. These loans can be the stepping stone to a successful career, but like anything, there are risks and rewards to be aware of.
Below are the most important things to know about fix and flip loans, also known as hard money loans.
Fix and flip lenders are legitimate business owners.
Like traditional banks, hard money lenders are in this business to make money. They are usually run as LLCs, S corps or sole proprietorships and have well-designed business strategies. This is similar to how banks work, but the difference is that banks have many more rules and guidelines to follow. Fix and flip lenders are private, so they have more flexibility in their loan terms and approvals.
Hard money is secured by real estate.
In the case of hard money, it’s secured by a hard asset like real estate. This is why fix and flip lenders care less about your income and credit history and more about the property you are investing in. That said, hard money lenders tend to charge higher interest rates, not because they are taking advantage of people, but because they must protect themselves from high-risk investments.
Rehab projects are best funded by hard money.
A typical hard money loan is between 6 and 12 months, though there is flexibility to this, especially when you build a relationship with a lender. This gives you enough time to rehab the property and sell it to new owners. It’s also important to have an exit strategy just in case unforeseen circumstances happen. Be sure to keep your lender in the loop! They have a shared interest in the home.
Expect to put some money down.
Hard money is not 100% financing. Private lenders want to see that you are committed to making the project work, which is why they expect a down payment. This amount depends on various factors, including the condition of the property and your work experience. In general, you can expect to put down 20% to 30%.
You can use hard money for other projects, too.
Even though hard money is touted for residential rehab projects, it can be used for commercial projects as well. If you want to invest in a mixed-use property or a commercial building, hard money is a great option. You’ll get the same benefits and flexibility as you would for a residential property.
First Funding Loans offers fix and flip loans for those looking to invest in real estate. We don’t just invest money into people - we invest ourselves into them! Contact us today to learn more about working with our convenient, flexible fix and flip lenders.
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