Pros And Cons Of Fix & Flip Loans
You've seen TV shows where people buy rundown properties, put in a ton of sweat equity, and then sell the property for a profit. It sounds like a great way to make some money. And it can be - but you need to know what you're getting into before you take the plunge. In this blog post, we'll take a look at the pros and cons of fix & flip loans so that you can make an informed decision.
The Pros Of Fix & Flip Loans
1. You Can Borrow Up To 100% Of The Purchase Price + Renovation Costs
If you're thinking about fixing and flipping a property, it's important to understand the financing options that are available to you. One possibility is to take out a loan that covers the purchase price of the property plus all estimated renovation costs. This can be a great option if you have good credit and don't want to tie up any of your own money in the project. However, it's important to make sure that you have a realistic estimate of the renovation costs before you commit to this type of financing. Otherwise, you could end up borrowing more money than you need and end up paying interest on funds that you never actually used.
2. Fast Closing Times
If you're looking for a loan that can be funded quickly, a fix & flip loan may be a good option. These loans tend to have fairly fast closing times, so you could have your money in as little as 7-10 days. This is important because when it comes to real estate deals, time is often of the essence. With a quick closing time, you can take advantage of opportunities as they arise and get your project underway quickly. Of course, it's important to work with a reputable lender to ensure that the process goes smoothly.
3. Flexible Repayment Terms
One last advantage of fix & flip loans is that they usually come with flexible repayment terms. This means that you won't have to start making payments on your loan until after you've sold the property. So, if it takes you a bit longer than expected to find a buyer, you won't have to worry about making loan payments in the meantime. This can give you some much-needed peace of mind during what can be a stressful process. And, if you're able to sell the property quickly, you may even be able to pay off your loan early, without incurring any penalties. So, if you're thinking of fixing and flipping a property, be sure to look for a lender that offers flexible repayment terms.
The Cons Of Fix & Flip Loans
1. High-Interest Rates
Though fix & flip loans offer a lot of potential for profit, they also come with some significant drawbacks. One of the biggest is that these loans tend to have much higher interest rates than traditional mortgages or even investment loans. This is because they are considered higher risk by lenders and because they are often short-term loans (more on this below). For example, rates on fixed & flip loans can range from 7% up to 12%. While this may not seem like a huge difference, it can eat into profits significantly, especially if the remodel takes longer than expected or the property doesn't sell as quickly as hoped. As such, it's important to factor in the cost of interest when considering a fix & flip loan.
2. Short Loan Terms
Short loan terms can be a downside of fix & flip loans. This is because you'll need to find a buyer and sell the property relatively quickly to avoid having to renew your loan or take out another one altogether. However, short loan terms can also be an advantage. This is because you'll have less time to worry about the property and less time to spend on repairs and renovations.
3. You Could Lose Money If The Deal Goes Sour
Of course, as with any investment, there's always a risk that things could go wrong and you could end up losing money on your deal - even if you've done your due diligence and been careful about choosing a property. For example, if the renovation process ends up taking longer and costing more than expected, or if the housing market dips just as you're trying to sell, then you could find yourself in hot water financially speaking.
Fixing and flipping houses can be a great way to generate income - but it's not without its risks. Before taking out a fix & flip loan, be sure that you understand both the pros and cons so that you can make an informed decision about whether or not this type of investment is right for you given your specific circumstances.
Are You Looking For A Hard Money Lender You Can Trust?
Persevere Lending, located in Danville, California, was founded with unwavering ethics and integrity. Our mission is to represent all of our clients with the highest level of respect and accountability. We understand people's challenges and anxiety throughout their real estate financing process. We can help mitigate their stress and uncertainty by navigating them through the loan process concisely, professionally, and transparently.
Private real estate financing is designed for strategic and/or opportunistic capital requirements for borrowers unable to obtain traditional financing. Persevere Lending is dedicated to providing our borrower clients with creative, efficient, and effective loans. And providing our investor clients with superior underwriting and due diligence to assure consistent yields and capital preservation. Contact us today for your consultation!
The materials available on this website are for informational and entertainment purposes only and not to provide financial or legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. You should not act or refrain from acting based on any content included on this site without seeking legal or other professional financial advice. The information presented on this website may not reflect the most current legal developments. No action should be taken in reliance on the information contained on this website and we disclaim all liability in respect to actions taken or not taken based on any or all of the contents of this site to the fullest extent permitted by law.