Fix and flip loans are short-term, real estate loans designed to help an investor purchase and renovate a property in order to sell it at a profit—generally within 12 to 18 months.
What is a fix and flip loan?
Fix and flip loans are a type of financing for investors who purchase properties to renovate them and resell them quickly. These short-term loans offer access to funds that can cover the cost of repairing and improving real estate investments before selling the property.
A fix and flip loans are intended to provide investors with the funds they need to purchase a distressed or undervalued property, make necessary improvements and upgrades and sell the property for a profit within a short period. While fix and flip loans can be risky, they can also be a lucrative opportunity for skilled real estate investors looking to generate returns relatively quickly.
How do they work?
Fix and flip loans can be structured in different ways, such as a term loan or line of credit. These loans are typically secured by the property you’re purchasing and renovating. Often there’s no penalty if you want to pay off the loan balance early.
To determine the amount of funding you’re eligible to receive for your loan, a number of different formulas are used.
- Loan-to-Value (LTV): The loan-to-value ratio compares your loan amount to the value of the property. The maximum LTV available for fix and flip loans is typically 90%. For example, if you’re buying a $100,000 property, the maximum loan will be $90,000. The remaining $10,000 will be needed as a down payment.
- Loan-to-Cost (LTC): The loan-to-cost ratio compares the loan amount to the total cost of the project. Total costs may include the purchase price of the real estate, renovation costs and miscellaneous costs. For example, if your total project cost is $120,000 ($100,000 to purchase the property plus $20,000 to renovate) and a lender offers up to 80% LTC, you’d receive $96,000 in loan funds. The remaining $24,000 would be needed as a down payment.
- After-Repair Value (ARV): The after-repair value is an appraiser’s estimate of the property’s value after renovations are finished. For example, if a lender offers 70% ARV, it will lend a maximum of $140,000 on a home that will be worth $200,000 after repairs.
Run scenarios, check loan amounts, and profit margins with our Fix & Flip Calculator.
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If you are interested in learning more about our Fix and Flip loans, we are here to answer all of your questions. We will walk through the numbers and the process, from application to closing.
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