Are you interested in flipping homes? A ton of money can be made from flipping houses, but doing your research and investing intelligently will be the difference between a successful flipper and an unsuccessful one; a lot of work goes into maximizing profits.
If you are looking into fix and flip loans for beginners, hard money loans are the way to go. Traditional banks or mortgage lenders are unlikely to fund flipping projects for beginners.
So what are fix and flip loans, and how do they work?
Fix and flip loans are for investors who want to buy, renovate and resell their property within a short period of time – 12-48 months. The minimum and maximum loan amounts can vary and are based on the value of your property rather than your credit score, as the property would be considered collateral if you are not able to repay the loan.
In a competitive real estate market, it’s crucial to remember that cash is king. What many investors and flippers have learned along the way, though, is that cash is not always completely necessary. Yep, you read that correctly.
Hard money loans provide investors who do not have all of the cash required to fund a flipping project with the ability to compete with cash buyers while using only a portion of the cash out of pocket.
If you are a first-time flipper, you might be quick to borrow from the first lender you talk to, but it’s essential to do your research and borrow from a reputable but flexible lender with hard money loan experience, like HouseMax. Using HouseMax will allow you to do up to 5 times as many deals compared to cash. The lender will base the loan on a percentage of the projected after-repair value (ARV) rather than the residential or commercial property purchase. Lenders will reimburse you for the repairs that you have completed, which helps keep the cash flowing.
Quick Tips on Fix or Flip Loans for Beginner
Research everything, and we mean EVERYTHING – from local prices to prices online for materials. Talk to people in the neighborhood about challenges they have faced over the years that only a resident would know, like extreme weather (hail, wind, flooding, etc.) This will help you consider the amount of money you want to borrow based on special situations that may occur in your area.
Make sure that you use a Hard Money Loan calculator to help you consider all costs that your project might have. Even the most seasoned flippers have overlooked costs and had to find funds elsewhere because they didn’t borrow enough. Including contingency funds will help you maximize profit and avoid unexpected costs and should also be calculated.
Fix and Flip Loan Calculator
There are plenty of fix and flip loan calculators available. Before that, you’ll need to calculate the cost of your flip – which can be challenging. Here are some general costs you will need to account for:
- Purchase Price: This is the initial cost of acquiring the property.
- Financing Costs:
- Loan Origination Fees: Usually a percentage of the loan amount.
- Interest Payments: Depending on your loan type, this could be monthly or accumulated and paid upon selling the property.
- Closing Costs: Include fees for services during the property purchase like escrow, title insurance, and appraisal.
- Inspection and Appraisal Fees: Before purchasing a property, you might want to get it inspected for potential issues. Additionally, lenders often require an appraisal.
- Renovation Costs: Break these down for accuracy:
- Labor: Costs of hiring contractors, specialists, laborers, etc.
- Materials: Everything from paint and flooring to fixtures and fittings.
- Permits and Licensing: Some renovations require city or county permits, especially structural changes or large additions.
- Contingency Fund: It’s wise to set aside an additional 10-20% of your estimated renovation costs for unforeseen expenses.
- Holding Costs: These are the costs of owning the property until it’s sold.
- Property Taxes: Prorated based on how long you hold the property.
- Utilities: Water, electricity, gas, and other utilities while the property is being renovated.
- Insurance: Homeowner’s or builder’s risk insurance for the duration of ownership.
- Maintenance: Lawn care, snow removal, etc.
- HOA Fees: If applicable, based on the community where the property is located.
- Selling Costs:
- Real Estate Agent Commissions: Typically 5-6% of the selling price.
- Staging Costs: If you’re staging the home to make it more appealing.
- Closing Costs: Similar to when you purchased, but now from the seller’s side.
- Property Taxes: If they are due while you’re in possession of the property.
- Miscellaneous Costs:
- Marketing: If you’re advertising the property.
- Travel and Transportation: If the property isn’t local.
- Legal and Professional Fees: For any consultations or legal work.
Once you understand your costs, reach out to a lender you trust.
Why HouseMax ?
HouseMax Funding is one of the top fix and flip lenders in the industry, perfect for both first-time fix and flip borrowers as well as experienced fix and flip professionals and custom builders.
Find out more by requesting a quote below.
