There are different steps to buying, fixing and flipping a property. The first one (and the most important) is finding a property with enough equity to fix and resell at a profit. These properties can be located in various ways, including short-sales, pre-foreclosures, bank-owned homes (REOs), and even motivated sellers. Sometimes property wholesalers can find a great deal and pass it on to you, the real estate investor, for a small profit. Websites such as Redfin and Zillow can help you estimate the after-repair-value (ARV) of your property. Inspectors and contractors can help you estimate the scope of needed repairs.
Always make allowances for surprise costs. If you’re a new flipper, it’s wise to bring a mentor or co-investor with experience along for the process.
Can I get a mortgage for fix and flips?
It’s hard to find a mortgage for distressed property. Usually banks want their mortgage to last for several years, while fix-and-flips utilize short-term loans. Banks also prefer owner-occupied properties, as this mitigates their risk. Even if you can secure a mortgage for a fix-and-flip, these loans can take time to close, which often lessens an investor’s influence with a seller. Being able to say, “I can pay cash and show proof-of-funds” has huge influence, and may motivate a seller to agree to a substantially lower offer.
How do Hard Money Loans work for fix and flips?
Usually Hard Money Lending criteria is based on the property value, needed repairs, and after-repair-value (ARV), since Hard Money Lenders typically use the property as a guarantee against their loan. This means: The property needs to have a profit margin. 70-75% LTV is a good starting point. Translated: selling price + repair costs + additional fees should total LESS THAN 70-75% of the property’s after-repair (resale) value.
In addition, Hard Money Lenders like to see some liquidity in their borrowers, such as the ability to put down some cash upfront, or reserves in the bank to make their lender payments. Each Hard Money Lender has different terms, costs, and criteria.
At The Funding Warehouse, we structure every deal differently, based on our analysis of the property and the borrower. Don’t hesitate to contact us if you have a fix and flip that you require funding for. We’re always happy to walk you through your numbers, and if the numbers work for us, we’d love to work with you on your next flip.