How Does A Fix And Flip Loan Work?

Hey, it’s Nicole Espinosa from Short Sale Queen! Today, let’s dive into the world of fix and flip loans—also known as hard money loans. Whether you’re new to real estate or looking for the best financing, I’ll break down what to look for and share some experiences to guide you through.

The Stress of Going All In

Initially, I avoided hard money loans, thinking of buying properties with my own cash. Sounds conservative, right? Well, it wasn’t. Tying up all my funds in one property became stressful, and it limited my ability to expand. Lesson learned: leverage is key!

What’s a Fix and Flip Loan?

A hard money loan is short-term, designed for a 6 to 12 month period, exclusively for fixing, renovating, and flipping homes. Unlike personal loans, it’s asset-based, focusing on property numbers and your experience.

Credibility and Relationship Matter

If you’re new to flipping, establishing credibility is crucial. Lenders want assurance you won’t let a property foreclose. As you build a track record, rates will improve. Remember, the high-interest rates are for a short-term loan—nothing like a 30-year mortgage.

1. Loan Structure and Costs

Interest-only payments monthly are standard, with lenders earning through points on acquisition (usually 3 to 4). A good lender might include construction costs. The process involves submitting repair estimates, and funds are released based on project progress.

2. Choosing the Right Lender

Choosing a lender is vital. I recommend Black Label, like Matt Podesta, based in Plano, TX, operating in multiple states. They offer a great relationship-based approach, and as you prove reliability the financing terms get better.

3. Budgeting for Success

Consider interest payments in your budget—critical if managing multiple properties simultaneously. Liquidity matters, so ensure you have enough to cover interest payments and contractor advances for 6 to 12 months.

4. Draw Process and Transparency

Check the lender’s draw process. A smooth, transparent process ensures you receive funds promptly, critical for managing construction crews efficiently. Not all lenders are the same, so ask about their draw turnaround time.

Share Your Experiences

Ever had a fix-and-flip horror story? Share it! Let’s learn from each other’s experiences. Don’t forget to check out our free one-hour pre-foreclosure class for valuable insights and a live Q&A session. Always feel free to reach out to us if you have any more questions or if we can help in any way.

Fix and Flip
Fix and Flip

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