6 Financing Options for Fix and Flip Properties
Short-term real estate investors use fix and flip loans to renovate properties before selling it for a profit. This type of financing requires specific funding options. Here are some of these options.
Hard Money Loan
Rehab investors use hard money loans are short-term loans. They can use these loans to purchase, renovate or to sell a property. These loans have lower qualifications to help fix and flippers receive approval quickly. Hard money lenders tend to look more at the potential value of the property.
Home Equity Line of Credit
When it comes to fix and flip investments, the home equity line of credit is for owner-occupied primary residences. Generally, you wouldn’t take this out on an investment property. However, what many fix and flippers do is that they receive a HELOC loan and then put it towards investment properties. HELOCs work best for those investors who have an owner-occupied primary residence, investors with more than 14 percent home equity and investors who have specific projects in mind.
Cash Out Refinance
Investors use cash out refinance investors who have an existing property. These investors need money to flip the house and to compete with other buyers. These cash out refinances can only finance up to 75 percent of the property’s loan-to-value ratio. Cash out refinances have competitive rates and long loan terms.
Bridge loans have higher rates and are short-term loans. These loans last from about a couple weeks to one year. Now based on the buyer, the bridge loans tend to have different qualifications. Most people use a bridge loan if they need quick financing or only have a small window of time. These loans can be especially helpful if you’re in the middle of selling a property and buying another.
Permanent Bank Loan
When you want to purchase a long-term and owner-occupied residence or non-owner occupied investment property, then you may want a permanent bank loan. Now, generally, these loans are best for homes that are in good shape. However, if you plan to live in the house that you are rehabbing, then you may benefit from a longer-term loan like this one.
Investment Property Line of Credit
Investment property lines of credit are specifically for investors. These products have higher rates only because banks consider investment properties riskier than residential properties. The terms are short and the qualifications vary by lender but also on the amount of equity in the property.
When it comes to fix and flip properties, it’s crucial to have the right financing options. Most financing options need to have competitive rates and shorter terms. Fortunately, there are a lot of options for investors.