Options for Fix-and-Flip Financing

Enjoy the thrills of fix-and-flip real estate investment by choosing the perfect property, gathering a skilled team and selecting the best financing option. Financial hurdles can be especially difficult to overcome when you’re flipping a property. Unlike traditional commercial properties and rental units, properties that need significant renovations may not qualify for a conventional mortgage, particularly if you need additional financing for renovations. Here are some competitive options available to get more out of your fixer upper.

A common option for quickly repairing and relisting your property is a hard money loan. These loans are easy to receive, completely flexible and only require short applications. You’ll need some sort of asset to back your loan, either another property or equipment. Most hard money loans don’t require a credit check or business history. However, your loan is considered high risk, so you’ll pay a higher interest rate. You’ll also need to pay off your loan quickly, since hard money loans rarely offer terms over a few years.

Cash out refinancing is another popular option for many fix-and-flip professionals. Also known as a second mortgage, this loan borrows against the value of your primary residence or other real estate. If you’ve paid off a significant portion of your home or other property, this is a competitive option for receiving flexible financing at a low interest rate.

If you don’t have a precise budget in mind for your flip, consider taking out a home equity line of credit or an investment property line of credit. Each of these options give you flexible funding, similar to a business credit card. Take out the exact amount of funding you need, rather than attempt to calculate the price of your project before work starts. This helps you avoid taking out too much loan and paying excessive interest rates.

Finally, if you’re looking for a long-term mortgage option and already have the working capital on hand to renovate your investment property, consider a traditional bank loan or commercial mortgage. A commercial mortgage gives you great rates and a long-term financing option for the value of the property itself. While you may not be able to pay for renovations with this financing, it may come with a higher loan limit and more competitive terms than other fix-and-flip financing options. Compare each option to discover how you can take your investment property and quickly renovate it, resell it and make a profit.

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