Flipping properties is a good investment. However, getting financing to start can be challenging for most investors. Traditional mortgages are not suitable for the flipping business since they focus on long-term properties.
For this reason, the fix and flip loans came to address this gap. These type of loans helps investors buy a property and sell it after making some improvements. The loans are short-term, usually 12 to 18 months. Flip loans are used for residential property development, hence may not be suitable for renovating establishments such as hospitals and schools.
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Uses of Fix and Flip Loans
There are various activities that flip financing allows. They include purchasing property, renovations, and construction.
• Purchasing property – You can use the loan to buy and resell the property after repairs to make it more appealing to buyers.
• Renovations – You should conduct a thorough analysis of what you need to repair to come up with the total cost. The costs include replacing floor tiles, new kitchen cabinetry, painting the house, buying and installing new appliances, and putting hardwood floors.
• Construction – The loan also allows you to purchase a dilapidated house, demolish it, and put up a new home for sale in its place.
Flipping Costs
While flipping costs may seem obvious, you may not be aware of multiple expenses if you are considering fix and flip loans. Typical flipping costs include;
• Loan carrying costs – These are the loan repayments you make before you sell the renovated property.
• Acquisition costs – These include good-faith deposits, financing costs, hazard cleanup, purchase price, inspections, attorney fees, and closing costs.
• Rehabilitation costs – These costs include building permits, insurance, renting construction equipment, labor, materials, and construction plans
• Holding costs – Before you sell the home, you may incur charges for maintaining the property in good condition. These include landscaping and utilities.
• Selling costs – These are mainly sales commission, marketing expenses, and building inspections.
Fix and flip loans are a form of hard money loans. Hard money lenders usually require real property as a guarantee. If you are starting in the flipping business, do your research and consider all the costs involved. After this, proceed to look for reputable fix and flip financing.