Are you a beginner in the fix and flip business, wondering if lenders will fund your project? You may have great credit and money in the bank, but lack experience in flipping properties. In this blog post, we will discuss fix and flip loans for beginners and how to secure funding for your first project.
Understanding Fix and Flip Loans
Fix and flip loans are short-term loans that help real estate investors purchase and renovate properties with the intention of selling them for a profit. These loans typically have higher interest rates and fees than traditional mortgage loans, but they are a viable option for investors who need quick financing.
Funding for Newbies
The good news is that there are lenders who will fund fix and flip projects for newbies. According to an expert in the video, most lenders will do 80% of the purchase price even for a newbie, and some might even do up to 90% of the purchase price. However, the gross loan amount will never exceed typically 70% of the completed value. This means that the lender will assess the value of the property after renovations are complete, and lend up to 70% of that value.
Tips for Newbies
To increase your chances of securing funding, it is important to have good comparable sales handy. This will help you provide the lender with supporting documentation and put your deal in the best light possible. Additionally, having a detailed construction budget is crucial. The lender will want to know exactly how much you plan to spend on renovations, and how you plan to allocate that money.
If you're doing anything that requires a permit, make sure you have a general contractor (GC) involved. This will help you navigate the permitting process and ensure that everything is up to code. However, for your first flip, it's better to keep things simple. Avoid big value-add projects that involve adding square footage or major structural changes. Stick to projects that are more “cookie cutter,” such as buying a property for $200,000 and putting $50,000 into renovations.
Conclusion
In conclusion, fix and flip loans are a viable option for real estate investors who want to purchase and renovate properties for profit. While it may be more difficult for newbies to secure funding, it is definitely achievable with the right preparation. To increase your chances of success, have good comparable sales and a detailed construction budget, and start with a simple project. With time and experience, you will be able to secure better financing options and take on bigger projects.
If you're interested in learning more about the fix and flip business, check out the Fix and Flip Master Class linked in the video. Good luck with your first flip!