For real estate investors, securing the right type of loan can make or break a house-flipping deal. Having the right financing not only ensures you have the funds to complete your project but also positions you to maximize profits. But with so many loan options to consider, how do you decide which one is right for your venture?
From private money loans to cash-out refinancing, this guide dives into the various types of loans available to house flippers and how to determine the best fit for your next project.
Understanding the Costs of Flipping a House
Before you explore financing options, you first need to understand the total cost of a fix-and-flip project. Beyond the initial property purchase, there are several additional costs to factor in:
- Renovation Costs: This includes materials, labor, and supplies required to rehab the property.
- Holding Costs: These are expenses you’ll incur while owning the property, such as property taxes, homeowner’s insurance, utility bills, and monthly loan payments.
- Marketing Costs: Expenses for putting the house back on the market, like hiring a photographer, staging, and paying agent fees.
- Financing Costs: The down payment, interest, and fees associated with sourcing the funds you need.
One common rule for gauging the feasibility of a flipping project is the 70% Rule. According to this guideline, you should not pay more than 70% of a property’s after-repair value (ARV), minus renovation costs. For example:
- Anticipated ARV = $500,000
- Estimated renovation costs = $100,000
- Maximum purchase price = $500,000 × 0.7 – $100,000 = $250,000
If the number works for your budget, you’re ready to start pursuing financing.
Types of Fix-and-Flip Loans
Once your costs are estimated, it’s time to explore the types of loans suited for house flippers. Here are five common options to consider:
1. Private Money Loans
What It Is
Private money loans are issued by private lenders or individuals, rather than traditional banks. These loans often come with more flexible eligibility requirements and terms.
Why Consider It?
- Faster approval and funding timelines.
- Loans can be tailored to the specific needs of your project.
- Ideal for borrowers with limited credit history who have a strong deal in place.
At Synergy Commercial Funding, we specialize in private money lending. We value the merits of your deal more than your credit score, ensuring access to fast and flexible funding.
2. Hard Money Loans
What It Is
A hard money loan is secured by collateral, usually the property itself. The value of the asset being financed is the key factor for loan approval.
Why Consider It?
- Quick, short-term funding (typically 12 months).
- Higher loan-to-value (LTV) ratios compared to traditional bank loans.
Synergy Commercial Funding’s hard money loans cover up to 85% of the purchase price and 100% of rehabilitation costs, making them a top choice for experienced and new flippers alike.
3. Cash-Out Refinancing
What It Is
This loan enables borrowers to tap into the equity of a property they already own, replacing the existing mortgage with a larger one and cashing out the difference.
Why Consider It?
- Leverage your existing property to fund a new project.
- Use liquid cash for property renovations or other expenses.
For example, if you owe $150,000 on a property but it’s valued at $300,000, a new $225,000 mortgage could free up $75,000 in cash for your next investment.
4. Portfolio Loans
What It Is
A portfolio loan is held by the lender instead of being sold on the secondary market. This gives lenders the freedom to offer customized terms.
Why Consider It?
- Increased flexibility in loan terms.
- Faster approval process and more personal service.
At Synergy Commercial Funding, our portfolio loans are fully customizable, ensuring the loan suits your project’s specific timeline and goals.
5. Blanket Loans
What It Is
A blanket loan is a single mortgage that covers multiple properties. It’s particularly useful for flippers managing multiple projects simultaneously.
Why Consider It?
- Streamlines the financing process for multiple flips.
- Saves time compared to applying for individual loans for each property.
Synergy Commercial Funding offers blanket loans for up to 10 properties at a time, making them perfect for scaling your flipping operations.
How to Choose the Right Loan for Your Flipping Project
Selecting the right loan depends on your financial circumstances, project goals, and risk tolerance. Here are some scenarios to help you decide:
- If you’re low on cash but have significant equity in another property, a cash-out refinance might be the solution to get liquid funds.
- For quick access to financing tailored specifically for real estate, private money loans are a solid option.
- If you have multiple projects in the pipeline, a blanket loan can help simplify your financing strategy.
Steps to Secure a Fix-and-Flip Loan
Once you’ve decided on the best type of loan for your project, follow these steps to secure funding:
1. Finalize Your Project Details
Gather crucial details such as property blueprints, costs, timelines, and contractor information. Lenders will want to see this information to assess the viability of your project.
2. Compare Lenders
Not all lenders are created equal. Research their track records, reviews, and reputations to ensure you’re working with a trusted partner.
3. Pre-Qualify for a Loan
Pre-qualification provides a way to learn your loan terms before committing. Synergy Commercial Funding’s pre-qualification process is quick, confidential, and has zero impact on your credit score.
4. Submit Your Application
Once pre-qualified, complete your application by submitting key documents, such as the purchase contract and anticipated scope of work.
5. Close the Deal
Upon loan approval, you’ll finalize the transaction by signing necessary closing documents and receiving your funds.
6. Flip with Confidence
With financing secured, you’re ready to transform your investment into a profitable return.
Flip the House, Not the Script
Flipping houses requires both vision and planning, and the right loan can mean the difference between profit and loss. At Synergy Commercial Funding, we specialize in providing flexible, fast funding tailored to real estate investors’ needs. Whether you’re a seasoned flipper or just starting, our expert team is here to guide you.
Pre-qualify today and discover how Synergy Commercial Funding can help you take your next flip to the finish line.
Are you looking for financing options for your business? If so, Synergy Commercial Funding is ready to help. We offer a wide range of commercial finance services to help businesses of all sizes achieve their objectives, whether it’s purchasing new equipment or purchasing a new commercial property.
Interested in creating a second line of income just by talking with your existing network? Want to help the economy grow by helping businesses around you grow? Think about becoming a Synergy Commercial Funding Partner. Visit our "Referral & Broker Program" to learn more.
