Fix and flip loans are an essential tool for real estate investors. With the right financing, you can transform a distressed property into a lucrative payout.
There are dedicated fix and flip loans designed to buy, rehab, and sell a property fast. But there are more ways to do it than just that specific loan—although they are good too. Here are all the ways you can finance that fix and flip.
The original fix and flip loan
Why it works
A dedicated fix and flip loan is designed to let investors buy, renovate, and quickly sell a property. These short-term loans typically have terms of six to 18 months and cover both the purchase price and renovation costs.
Loan amounts are usually based on a percentage of the property’s after-repair value (ARV) – usually around 75% – ensuring that you have the built-in value to complete the project and sell at a profit.
Lenders often require experience in fix and flip projects and may also assess your credit score, financial stability, and the property’s potential profitability. This type of loan is better suited for experienced investors with a solid track record and a well-defined exit strategy.
Pros:
- Designed specifically for fix and flip projects
- Covers a portion of the purchase price and all renovation costs
- Short-term financing with a relatively quick approval process
Cons:
- Some lenders require experience in fix and flip projects
- Higher interest rates and fees compared to traditional loans
- Strict eligibility criteria
Who offers it?
We can connect you with a reputable fix and flip lender.Hard Money Loan
Why it works
Hard money loans are asset-based loans provided by private investors or companies.
They are ideal for fix and flip projects because they offer fast approvals and flexible terms. They are based largely on the property’s value rather than the borrower’s creditworthiness. This makes them suitable for investors with a limited credit history or those who need quick financing to secure a deal.
The interest rates are typically higher with shorter repayment terms than traditional loans. They can also come with high fees and points. But their flexibility can be invaluable for investors looking to capitalize on time-sensitive opportunities. They are also easier to qualify for, as lenders focus more on the property than the borrower’s credit score.
Pros:
- Fast approval process
- Flexible terms and requirements
- Based on property value, not borrower’s creditworthiness
Cons:
- Higher interest rates and fees compared to traditional loans
- Shorter repayment terms
- May require a higher down payment
Who offers it?
Find a hard money lender.HELOC (Home Equity Line of Credit)
Why it works
A Home Equity Line of Credit (HELOC) enables homeowners to borrow against the equity in their primary residence to finance a fix and flip project. This revolving line of credit provides flexibility, as you can draw funds as needed during the renovation process and only pay interest on the amount used.
HELOCs have lower interest rates than hard money loans and other fix and flip financing options. Additionally, they often have longer repayment terms, providing more time to complete the project and sell the property.
Pros:
- Lower interest rates compared to other fix and flip loans
- Flexible financing with the ability to draw funds as needed
- Longer repayment terms
Cons:
- Requires sufficient home equity in primary residence
- Puts your primary residence at risk
- May have variable interest rates
Who offers it?
Get your HELOC closed quickly.Home Equity Loan
Why it works
Home equity loans—another option for investors looking to leverage the equity in their primary residence. Unlike the previous option (HELOC), a home equity loan provides a lump sum upfront, which can be put toward the purchase and renovation of a fix and flip property.
Home equity loans commonly have fixed interest rates and repayment terms, making them a predictable financing option for investors. They also have lower interest rates than hard money loans and other short-term financing options, making them more cost-effective in the long run.
Pros:
- Lower interest rates compared to other fix and flip loans
- Fixed interest rates and repayment terms
- Provides a lump sum upfront
Cons:
- Requires sufficient home equity in primary residence
- Puts your primary residence at risk
- May have higher closing costs compared to a HELOC
Who offers it?
Investment Property HELOC
Why it works
An Investment Property HELOC enables investors to borrow against the equity in an existing investment property rather than their primary residence. This option allows you to leverage the value of your investment properties while keeping your primary residence out of the equation.
Investment property HELOCs offer similar benefits to traditional HELOCs, such as flexible financing and lower interest rates than hard money loans. However, they may have stricter eligibility requirements, such as a higher credit score or a lower loan-to-value (LTV) ratio.
Pros:
- Leverages equity in investment property instead of primary residence
- Flexible financing with the ability to draw funds as needed
- Lower interest rates vs. hard money loans
Cons:
- Stricter eligibility requirements
- May have variable interest rates
- Limited availability from lenders
Who offers it?
Cash-Out Refinance
Why it works
A cash-out refinance allows investors to replace their existing mortgage with a bigger loan, providing them with the difference in cash. This option can be used to finance the purchase and renovation of a fix and flip property while potentially securing a lower interest rate on the new mortgage.
Cash-out refinancing is best suited for investors with a significant amount of equity paid into their property and a strong credit profile. It might also be an attractive option for those looking to consolidate other high-interest debt or improve their overall financial situation.
Pros:
- Provides a lump sum upfront
- May secure a lower interest rate on the new mortgage
- Can consolidate high-interest debt
Cons:
- Requires significant equity in the property
- Extends the repayment period of the original mortgage
- May have higher closing costs compared to other financing options
Who offers it?
See how much you can get from a cash-out refinance.Personal Loan
Why it works
Personal loans are a flexible type of unsecured loan that can be used for a wide variety of purposes, including financing a fix and flip project. Personal loans do not require collateral. This feature makes them a less risky option for investors who don’t want to put their property on the line.
Personal loans commonly have fixed interest rates and repayment terms, providing predictability for investors. However, the interest rates for these loans will often be higher than secured loans—i.e., home equity loans or HELOCs, depending on the borrower’s credit profile.
Pros:
- No collateral required
- Fixed interest rates and repayment terms
- Can be used for various purposes
Cons:
- Higher interest rates compared to secured loans
- Limited loan amounts
- Requires strong credit history
Who offers it?
Business Loan
Why it works
A business loan can provide financing for fix and flip projects for investors operating as a registered business entity. Business loans may be secured or unsecured and can offer competitive interest rates and terms depending on the borrower’s creditworthiness and the lender’s requirements.
Business loans are best suited for experienced investors with a strong track record of successful fix and flip projects. They may also be an attractive option for investors looking to scale their operations and build a portfolio of investment properties.
Pros:
- Can provide financing for fix and flip projects
- Can offer competitive interest rates and terms
- Ideal for experienced investors looking to scale their operations
Cons:
- Stricter eligibility criteria compared to other loan types
- May require collateral for secured loans
- Requires a registered business entity
Who offers it?
Crowdfunding
Why it works
Crowdfunding is an increasingly popular option for fix and flip projects, as it enables investors to raise funds from a large pool of lenders. With this method, investors can seek financing for their projects without having to go through conventional banks or other lending institutions.
Additionally, crowdfunding offers more flexible terms than many other loan types and does not require a credit check or collateral. This makes it ideal for inexperienced investors who may not qualify for more traditional loans.
Pros:
- Flexible terms compared to traditional loans
- Platforms available with varying eligibility criteria
- No credit check or collateral required
Cons:
- Higher interest rates compared to traditional loans
- May have longer repayment terms
- May require a higher down payment
Who offers it?
The best fix and flip loans 2023—the bottom line
The best fix and flip loan for 2023 depends on your objectives, experience level, and financial situation.
While a straightforward loan may be suitable for experienced investors with a well-defined exit strategy, others may prefer the flexibility of a hard money loan or the lower interest rates of HELOCs or home equity loans.
Regardless of which option you choose, make sure to do your due diligence before committing to any financing agreement. Research lenders thoroughly and compare their terms, fees, and eligibility requirements to ensure you get the most suitable loan for your project.
Connect with the right lender for your project.Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
