A fix-and-flip loan is a short-term financing option designed for real estate investors who purchase properties with the intention of renovating or “fixing” them and then selling (“flipping”) them for a profit. These loans are typically used for distressed or undervalued properties that need repairs or updates before being resold.
Key Features of a Fix-and-Flip Loan:
Short-Term Loan: These loans are usually short-term, ranging from 6 months to 2 years, since the goal is to renovate and sell the property quickly.
Higher Interest Rates: Compared to traditional mortgages, fix-and-flip loans tend to have higher interest rates, reflecting the higher risk associated with these types of projects.
Fast Approval and Funding: These loans are designed for quick approval and fast funding, allowing investors to move quickly on properties that may be time-sensitive opportunities.
Property-Based: Lenders typically evaluate the property’s potential value after renovation (the ARV, or After Repair Value) rather than the borrower’s credit score. The goal is to ensure the investor can complete the project and sell for a profit.
Loan-to-Value (LTV) Ratio: Lenders usually offer a loan amount based on the property’s purchase price and estimated renovation costs, with a typical LTV ratio ranging from 70-90% of the combined cost of the property and repairs.
Fix-and-flip loans provide real estate investors with the capital needed to acquire and renovate properties quickly, making them ideal for those looking to capitalize on opportunities in the market that require speed and flexibility.
