If you have a fix and reversal project, you know it’s important to have money ready when the next big deal pops up. So what are the best fix and flip loan options for investors?
There are some commonly used options and some unconventional options available. The most savvy investors have several different options to help them act quickly to win a deal.
This is an overview of the options available, such as the best options for a particular type of investor and the perks associated with each.
Hard money or private money loan
what is that: Private money loans, also known as rehabilitation loans, bridge loans, and hard money loans, are a type of loan provided by a private lender to a real estate investor (borrower) to purchase real estate. The purpose of the borrower is usually to repair and turn over the property.
Optimal use: Proven and experienced investor Successful turning home.. The lender wants to know that the borrower has the knowledge and expertise to complete the project in a profitable way.
- Quick access to cash. Traditional bank loans usually take 30 days or more to complete. For most real estate investors, this means a loss of opportunity. Waiting for money for 30 days allows a competitor with cash to raid and “steal” a transaction.
- Income evaluation.. Proof of income is a traditional lender requirement. For many real estate investors, especially self-employed or fee-based investors, this requirement often disqualifies them from bank loans. Private lenders focus on the value of real estate because the loan is secured by real estate. This simplifies the requirements.
- Project and property values.. A common measurement tool for banks and private lenders is the loan-to-value (LTV) ratio. The question is what is the “value” it refers to. Is it the value of the current property or the value of the property after rehab? It can be difficult for traditional lenders to take into account post-rehab value, which can limit the size of the loan. However, private lenders are often much more willing to offer loans based on their expected ultimate value.
- Property condition.. Many traditional lenders (FHA) The property must be occupying. This requirement is difficult to meet because corrections and reversals usually require major modifications. Hard money lenders understand the nature of the project and will be ready to move in after improvements have been made.
- Credit score. Loan consideration requires a strong credit score at all traditional institutions. Private moneylenders consider credit scores to be one of many factors, but they are most concerned about asset value.
Loans from friends and family
Mixing business and joy can be difficult, but let’s face it. If you’re just getting started, this may be the only real option. If you seek funding from a friend or family member, treat it like any other commercial transaction. Submit everything in writing to ensure that expectations and potential risks are well documented and communicated.
what is that: A personal loan with terms established by the lender and the borrower.
Optimal use: Your first fix and reversal project.
Benefits: Provides access to financing if you don’t have the track record or cash to trade on your own.
Cash out refinancing loan
what is that: Refinancing existing real estate to get the cash needed to buy new investment real estate. The new loan is considered the first Lien. This means you have to pay off your existing lien, such as your original mortgage, before you can withdraw cash.
Optimal use: An investor who has been in the game for a while and has at least one property with accumulated equity. It usually requires 30% to 40% capital.
Benefits: Access to cash when there are no achievements or rich uncles.
Home Equity Credit Line (HELOC)
what is that: A line of credit based on the value of an investor’s existing home.
Optimal use: Modify and turn over an investor who owns a primary home and has a stake of at least 30% to 40%.
Benefits: You don’t have to specify a specific project. Cash is sitting there ready to go when you need it.
Related: How to buy real estate using HELOC
Investment Real Estate Loan (LOC)
what is that: Investment real estate, usually the credit line for long-term rentals.
Optimal use: A veteran investor who has accumulated equity in rental properties. Generally, a property requires 30% to 40% equity to be approved by LOC.
Benefits: How to get money when you don’t own your main home and / or when you have a lot of stock but poor cash.
(Note: The following are new funding options to consider. When thinking about this option, you have a big picture and it’s ready to use. You can use it to raise money and buy fix-and-flip properties. However, it also provides access to funding to help you participate in the game and complete the project.)
Real estate crowdfunding
what is that: A new way for investors to raise money. Through crowdfunding, investors can fund their transactions or invest in other people’s projects.
Optimal use: Investors who do not have the funds to do their own projects. Also suitable for people who do not want to practice.
Benefits: Expand the reach and network of private investors. Some platforms have a low minimum investment of $ 5, opening up real estate investments to a wider range of individuals.
There are many loan options available to modify and reverse investors. Not everything is good for all investors. Choose the investor that best suits your situation and helps you reach your goals. It is also wise to diversify your funding options, just as risk diversification is always a good practice.
What type of funding did you consider? which is good? why?
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