If you are planning a fix and flip home rehab project, financial planning is the key to success. As such, you will need to find the right kind of loan that suits your budget and the state of your business. Whether you are new to the house flipping game or you have been in business for some time, using fix and flip loans may be an effective way to increase your profits. Here are a few steps you can take to find these types of loans as you begin your next project.
Before you seek out a lender that offers fix and flip loans, you should create a business plan that is tailor made to your project’s individual needs. For example, if you plan to purchase a fixer-upper that is listed at $300,000 but needs $60,000 worth of renovations, you will need to estimate how much the home will be worth when you are ready to sell it. If you estimate the home can be sold for $500,000 in the future, most lenders will typically lend you around $325,000, which is 65 percent of the total estimated profit. Because this amount will change depending on what you plan to spend on a home, your business plan should be adjusted for each individual project.
The next step to take when seeking out fix and flip loans is to decide what type of lender you will work with. While some flippers go with traditional bank loans, this may not be a good option if you have poor credit or are inexperienced in the real estate business. If this is the case, then you may want to look into hard money or private money lenders. These lenders specialize in loaning money to inexperienced flippers whose credit is less than perfect and who want to get their project underway in the next thirty days.
If you decide to go with a hard money lender, the next step is to organize the paperwork you will need to submit in order to process the loan. You will have to arrange a property appraisal, a repair estimate and have recent tax returns prepared to submit to your lender before you can secure a loan. You should also keep in mind that each lender may require different documents, so meet with your lender about what type of documentation you will need to present in order to secure a loan.
Fix and flip loans can be a viable resource for your next home rehab project. Careful financial planning and preparation are important before you begin, however, especially if you are new to the world of flipping houses.