Fix & Flip Loans
Fix and Flip loans are short term purchase and renovation financing for value-add business plans. These loans are mortgages that are only made to entities, and they are designed for full-time property flippers who are using their experience in construction, remodeling or rehabilitation and as business operators to buy low, renovate, and sell high.
Key Characteristics
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Loan covers property purchase and renovation costs.
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The investment strategy is a short-term buy, renovate, and then sell over 3-18 months.
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The business plan must be focused on increasing the property value.
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Foreign nationals are required to put as much as a 75% down payment, but lenders always finance 100% of construction costs.
Loan Structure
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Loan Amount: $100,000 – $5 million
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Interest Rates: 10-14%
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Down Payment: 10-35%
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Rehab Costs: 100% Financed
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Closing Time: 1-4 weeks
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Origination Fees: 2-5% loan amount
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Interest only payments
Qualification Criteria
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Proven real estate investment experience
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Detailed renovation plan
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High liquidity required
Required Documentation
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Personal identification documents
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Bank statements
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Renovation budget
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Property appraisal
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Permits if adding square footage
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Entity documentation
Risk Mitigation Strategies
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Comprehensive property valuation
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Tenant credit assessment
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Due Diligence
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Demonstrated investment experience
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Clear exit strategy
The Precise Details
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Fix and flip loans are a combination of a construction loan and bridge loans.
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Investors must pay for construction, and then get reimbursed.
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Monthly interest payments are often financed into the loan.
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The terms that lenders will offer you depend on the scope of work.
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Light rehab is less than 50% of the purchase price.
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Heavy rehab is 50-100% of the purchase price.
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Full rehab is 100%+ of the purchase price, and is reserved for experienced flippers.
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Lenders will conduct a private feasibility study on your property, and they will not share it with you. This is the difference between underwriting the investor’s experience and underwriting the project.
Strategy Advice
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You should know your contractor’s profit margin on every single cost that you incur. For example, when you spend $20,000 on a light rehab, you should expect $16,000 of work. When you spend $60,000 on a full rehab, you should expect $30,000 of work.
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It’s best to use fix and flip loans not the first time, but an investor’s 2nd, 3rd, 4th, and 5th projects in a market until you have enough capital to finance acquisition and renovation with cash.
Banks
