Fix-and-flip financing (hard money loans) are simply a short-term loan secured by real estate.
Sometimes referred to as “private money,” these loans are funded by private investors (or a fund of investors) as opposed to funds available from conventional lenders such as banks or credit unions. They typically feature higher interest rates compared to longer-term bank loans, and interest-only monthly payments followed by a balloon payment to retire the note when the property is sold after being successfully rehabbed. The higher rates, however, are more than offset by the short-holding period, combined with the ability to add leverage to the investment, both of which increase ROI and scale for a fix-and-flip business.
The fix-and-flip lender must also consider the borrower’s plan for the property being funded, including its estimated After Repair Value (ARV). The borrower must present a reasonable plan that shows how they intend to ultimately pay off the loan after the property has been repaired or renovated.
Why consider a fix-and-flip loan? Commercial bank loans often come with strict borrower and property qualifications, daunting amounts of red tape, and slow funding timelines that often make these loans impractical for the professional fix-and-flip investor.
Experienced flippers with successful track records who are looking to grow while further leveraging or conserving their capital should consider the benefits of private direct loans.
Fix-and-flip financing gives investors the flexibility and agility they need to quickly execute purchase contracts, compete at foreclosure auctions, close cash-only deals, and fund construction. Note that if a property is attractive to you, it will be attractive to other flippers in your area, so the ability to act fast can be a crucial ingredient towards success and profitability.
If you are looking to scale up your volume, snap up quick deals and increase your ROI, short-term fix-and-flip financing may be the right choice for you.
Interested in faster loan closings, lower risk, and growing your fix-and-flip business? Get our free step-by-step Fix-and-Flip Borrowers Guide for driving ROI and growth.
Ready to finance your next fix and flip property? Anchor Loans has funded more than 13,900 short-term loans totaling over $4 billion— the majority of them to borrowers with less than perfect credit and on properties in need of repair. Click here to apply for a loan or get a quick estimate.