If you’re the type of person who only wants to receive money that you think is due to you for work you’ve done, then you might want to consider looking into fix and flip loans. These are loans that are meant to help you buy a house, fix it up, and then sell it (called fixing and flipping).
Fix and Flip Loans: What Are They?
Fix and flip loans are the type of loan that is most well-known to real estate investors and those in their periphery. They are sometimes known as rehab loans, bridge loans, or even residential transition loans. These loans are typically used by real estate lenders to help you purchase a property. They will then improve the property and sell it for an additional profit.
To look at it differently, fix and flip loans have two components to them: the purchasing of the initial project and then the fixing of the house.
When it comes to purchasing a home, it is typically a pretty easy process. In this situation, the lender will determine how much of a loan they’ll give you based on how much profit they think they’ll be able to make after you repair the space. These sorts of loans are called loan-to-cost loans, and they can range from anywhere between nine and 24 months.
The process for purchasing the house is similar to other types of mortgage financing purchases. You’ll apply, provide the specific documentation, and then wait to see if you’re approved. If you get approved for the money, it’ll then be time to get to work.
Fixing the House
When it comes to fixing the house (sometimes called “the rehab”) things get a little tricky and interesting. When it comes to this stage, you now own the property, and you’ll want to start fixing it. But to fix it, you’ll need funds to do so.
When it comes to fix and flip loans, you will likely be required to front the money that will be used for the repairs. This means that you will need funds that will be used to buy materials and pay contractors for any work that will be done on your newly purchased home. This money that you’ve spent will be reimbursed to you after you submit a request for the lender to do so.
Before you receive the reimbursement, the lender will send an inspector to look at the property and approve that the work is done to their specifications. After, they will release the funds to you.
Only you can determine the type of loan that is best for your needs. If you’re considering getting into the market of fixing and flipping homes, then a fix and flip loan is a great place to start. Make sure to do your due diligence and research to ensure that you’re aware of all the potential pitfalls of this loan, of course.
Once you’ve done your research and feel good about what you’ve determined, it’ll then be time to pull the trigger and apply for the loan.