It happens all the time. A home in a great location, but with completely worn-out floors, appliances, paint, and basically everything else in between. The home will usually sell for much less leaving room for any investor to buy the home, fix it, and then sell for a healthy margin. That’s a very simple example of a fix & flip. Fix & flips, however, bring up the not-so-simple problem of acquiring the capital to buy an actual home. Since most fix & flips are purely for profit and never to live in, those investing in these properties already have assets and responsibilities of their own, making having the required capital to purchase even harder. Fortunately, at Scout, we know a thing or two about flips and want to start the conversation with how to acquire the capital to fix & flip your own.

 

1.     Permanent Bank Loan / Online Mortgage for Fix & Flip Funding

Like mentioned before, fix and flips are not meant for necessarily living in, so a traditional 30-year mortgage is out of the question. An FHA 203(K) allows for the owner-occupied purchase and renovations of a primary residence. Although this is an option, it is most probably the least taken route because most fix and flippers will work and take a risk on a house that is not their place of stay.

 

2.     Fix & Flip Bridge Loans

Bridge loans are usually used to purchase a property before selling another property — covering the time between two real estate transactions. Although it does allow the borrower to purchase a fix and flip property without having a contingency to sell the other, the bridge loan cannot be used to finance rehabs. The rehab option is usually the biggest tell between a borrower choosing between a bridge loan and a hard money loan.

 

3.     Fix & Flip Property Line of Credit (LOC)

Much like how a credit card has a certain amount that can be used at any time, an investment property LOC is just the same with fix & flips. During the application, an individual may choose to get a single asset investment property LOC or a usually-larger portfolio investment property LOC. Use of funds will be outlined during the borrower’s application. A distinct feature of the LOC is that it can only be used on non-owner-occupied properties.

4.     Cash-Out Refinance for Fix and Flip investments

Most fix & flippers have their own homes and assets as well. Chances are, they are paying a mortgage on their own home, so a cash-out refinance allows the investor to refinance their existing property to finance the purchase of a new investment property. In other words, by using the equity that they have amassed over the years on their own homes, investors can pull out money to finance the new investment. Cash-out refinances have almost no limits on them, meaning the borrower can spend their money however they want, whether it’s on an owner-occupied or non-owner-occupied property. The only limitation is that the non-owner-occupied property can’t be over 4 units.

 

5.     Hard Money Loan

A hard money loan is a short-term loan where the collateral is not with the borrower or any of their assets, but the actual property that is being fixed & flipped. Hard money loans can be used for purchase, renovation and selling off property all within one year. The only real limitations hard money loans have are prohibiting funds being used for owner-occupied properties. Many borrowers prefer hard money loans for two main reasons: (1) a borrower could receive funds in their bank and start their project within 2 weeks, and (2) hard money lenders care much more about the value and potential of the property rather than placing the emphasis of their funding criteria on the borrower’s background.

 

Conclusion:

If you’re looking for a way to fund your fix & flip the property as fast as possible, or you’re worried your resume won’t bring too much to the table, we recommend taking the Hard Money Loan route. Although interest rates are slightly higher than some of the other options, the speed and urgency behind these loans allow borrowers to fix & flip homes much more successfully in an economy where the housing market can change within months.

 

Finding Hard Money lenders can be challenging, especially with their different criteria. Let lenders come to you by using Scout. 

Scout Hard Money is a marketplace where borrowers make a listing of their potential fix & flip. They’re able to answer all the questions every lender would ask them. With a few photos, this information is placed in front of hundreds of different lenders at the same time. Although you’ll still want to hustle to get the capital, you’ll feel rest assured that there’s a place where lenders can look at your deal, look at your offer, pre-qualify & message you, even while you sleep.