Many investors are turning to property flipping in order to reach their profit goals. While fixing and flipping can be a lucrative source of income, there are some considerations to keep in mind. For example, the way you obtain your funding.
What Is Fixing and Flipping?
Fix and flip loans are short-term loans that real estate investors can use in order to renovate a property before listing it on the market. This is to increase the value of a property and flip it for a larger profit.
Fix and flip loans are typically high-interest loans due to the short term of a fix and flip project. In most cases, an investor will purchase a distressed property below the market price. Next, they’ll attempt to fix the property. This might include a full renovation, fixing the foundations or dressing it up and fully installing certain amenities and extras. Next, the goal is to flip the property by taking into account the price paid for the property, the renovation investment and also a profit margin.
Who Provides Fix and Flip Loans?
In most cases, fix and flip loans are offered by private money lenders to private investors or business entities.
What Risks Are Involved?
Fixing and flipping sounds like a great way to make a profit from old and distressed properties, but it doesn’t come without risks.
It’s important to understand what you’re doing when it comes to renovating a property in order for it to sell quickly on the market. You also need to pay off the loan by the deadline or else your lender will resort to foreclosure. It takes experience and knowledge of the property market to make fix and flip loans lucrative.
What Is Expected of Me?
Typically, a fix and flip loan will require you to invest a down payment. This can be anywhere between 20% to 40% of the property’s value in your own money. You’ll also need to provide a personal guarantee. Most lenders will also require you to show them a plan of action and how much money you estimate you’ll need for the fix and flip project. There are standard loan fees such as administrative fees and inspections.
Once you’ve been approved, you’ll need to work quickly to repair the property and re-list it on the market at a higher price. Once the project has concluded, you’ll pay off your loan and the terms will be met. Fix and flip loans are a good way for property investors to advance their career and make a profit, but it does require considerable knowledge of the markets and an understanding of how to rehab a property.
Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one our lending experts today.