With a vision, some hard work and a bit of technical knowledge about construction you can begin making an income fixing and flipping houses. But the hurdle that determines who can take on this endeavor and who is left in the lurch comes down to the loan. There are a few different loan types for flipping houses. But these truths ring through the many loan types and for the different types of investors! They’re specifically referred to as fix and flip loans.
Not Every Property Qualifies For a ?Fix and Flip? Loan
Fix, and flip loans are great for everything from traditional, single-family homes to commercial buildings. However, many fix and flip loans aren?t available on the more common houses. If the house doesn?t need very much renovation or the property has already been handed off multiple times, there may be some obstacles in the way.
For someone seeking a traditional home loan for a fix and flip setting, they may find that the house doesn’t qualify for additional loans. This is because the repairs are minimal and it meets standard living conditions or code for the region. Be careful with choosing your properties, so you’re not inclined to take out a personal loan to finish the project.
Fix, and Flip Loans Use Big Picture Mathematics
Unlike buying a home that you plan to live in for thirty years, a fix and flip loan is a risk for you and the lender. You could either overestimate the cost of repairs and borrow more than you need. Or you could underestimate and borrow less than you need. Both sides of the sword are sharp and deadly.
If you overestimate the cost of repairs and can?t sell the house for more than your loan, you’ll lose money. But the opposite is if you underestimate and have to get a personal loan to complete the house. You’ll be paying a higher interest rate on the borrowed money and may still end up in debt.
What you need to know about fix and flip loans is that you?ll have to fight for what you need to borrow. Lenders will often distribute loans based on the current property value. That won?t get you very far if you?re planning on sprucing up the place to sell again. Know what you need to borrow, and why you need that dollar amount before approaching a lender. You can use this fix and flip calculator to help estimate rehabilitation costs and hold time expenses.
Think of a Fix and Flip Loan as a Job Application
That’s right. You’ll need to focus on more than just your credit and lender worthiness to start fixing and flipping. A fix and flip loan will look at your experience working with houses. And may even depend on which contractors you plan on using. Applying for fix and flip loans will always go far beyond applying for a standard home loan. And that’s even if you’re ironically planning on just using a standard home loan.