Updated: Oct 1, 2021
Okay, so now you have found your fix and flip property investment opportunity. You did your due diligence, did all the necessary inspections to make sure your fix and flip does not have any hidden defects or problems and secured the contract with the seller.
You did the math as to how much money you will need to fix and flip the investment property.
You took into account the purchase cost of the property, the total rehab cost to renovate it.
Now that you have everything in place, what's next? Well, it is time to get your real estate fix and flip investment property financed.
In this short article, we're going to discuss how to get your real estate fix and flip financed and clarify some questions about some of the terms that real estate investors are always interested in learning more about.
Financial Funding Networks offers fix and flip real estate loans designed for real estate investors who purchase distressed properties to rehab and then sell these real estate properties for a profit.
There are many scenarios in lending to real estate investors, so we'll focus on the typical fix and flip loan for this discussion.
The real estate fix and flip loans are available for one (1) to four (4) unit residential properties.
Financial Funding Networks provides funding for real estate fix and flip loans from $75K (USD 75,000) up to $3MM (USD 3,000,000)
We can borrow up to 92.5% LTC with a 75% maximum ARV. Now, what does this mean?
Note: This applies to Real Estate Investors only, first-time fix and flip investors can expect to put a 20% down payment minimum.
Let's break it down to have a better understanding of what these terms mean:
LTC means Loan to Cost, and the ARV is the As Repaired Value.
The basic formula for the LTC or loan to cost is the loan amount over the cost. So, for example, if the total cost to purchase a fix and flip property is $200,000, the amount of the loan to the borrower at 92.5% LTC will be $185,000, which means the borrower will need to put 7.5% or $15,000 down payment. Still, we need to ensure that the $185,000 loan does not exceed 75% of our ARV or As Repaired Value rule. So how do we calculate that?
In this scenario, if the real estate investor is expecting a profit of 30%, then the ARV is $200,000 x 1.30 = $260,000, so if you multiply that amount by 0.75, you get $195,000, which is clearly $10,000 more than 185,000 and 185,000 divided by 260,000 is 71% hence lower than our 75% ARV rule, in this case, we can we move forward to next steps.
For these types of fix and flip real estate loans, we offer 13, 19, and 24-month term options.
These rules are only applicable for this type of fix and flip real estate loans with Financial Funding Networks; other lenders will have different rules.
Whether a bank or a private company, any lender will always require a down payment from the borrower; this ensures the borrower has "skin in the game" or a financial stake in the deal. This is important because it motivates real estate investors to do their due diligence on each real estate project.
Suppose you, the real estate investor, are in the beginning stages of real estate investing and do not have enough capital to fix and flip a property.
In that case, I would suggest starting low instead of targeting high-priced properties, as you work your way and scale up your real estate investing business.
To illustrate how you would do that, let's use a $100K loan amount as an example, and assume you find a real estate property where you borrow at 92.5% LTC, this means the funded loan is $92,500 and your down payment is $7,500.
Assuming the ARV or the sale price on the property is $150,000, then you're in good shape because the LTC of $92,500 / 150,000 ARV = 62%. This satisfies our 75% maximum ARV rule, so the lower the ARV percentage, the better.
This is a much easier way to start investing in the real estate business and scale up as you grow your business. However, be aware that there are other expenses. Once you get the loan approved and funded, you need to fix your property and get it ready as soon as possible to put it on the market for sale. Meantime you will need to make sure you make all your mortgage payments and other expenses until you sell it; the good news is that the average fix and flips are sold within nine(9) months.
Assuming your mortgage payment is interest-only for 13 months which is plenty of time to sell the property on a 92,500 x 0.08 = $7,400 / 12 months = $617 per month payment. You will also need to make sure to pay taxes, mortgage insurance, and utility bills while you are fixing it and have it listed on the market, so make sure you have enough capital to sustain your investment until you sell it.
Continuing this example, let's evaluate the potential return on investment (ROI), assuming it takes you six months to fix it and then sell it for $150,000 here is the breakdown:
Down payment: $7,500
Overall cost of the loan (about 5%) $4,625
Mortgage Payment: $617 x 6 = $3,702
Avg Utility Expense
(water & electricity) $200 x 6 = $1,200
Mortgage Insurance $150 x 6 = $ 900
Assume property tax $250 x 6 = $1,500
Total investment : $19,427
Sell Price: $150,000
Mortgage amount owed: -$92,500
Total Investment: -$19,427
Return On Investment (ROI): 296%
The sky is the limit.
As you can see, just one fix and flip deal can make your year with a low investment of less than $20,000; you can double or triple if you do it right and all within a few months; imagine if you do a couple of these deals in one year?
Work with Me
If you would like to work with me we can analyze these and other types of real estate projects together so you can be confident in your real estate investing opportunities.
You can get in touch with me by either going to my website: www.greenroadfunding.com and fill out the form there. Or preferably send me an email at firstname.lastname@example.org with your real estate property information. To start you let me know the type, property's purchase price, what the total rehab cost is, the address of the property, and also the FICO score. This information will help us customize the proper fix and flip real estate loan to get you funded properly.
I look forward to hearing from and working with you.