What Are Fix and Flip Loans? 2023 Guide for New Investors

Real estate investments are popular these days, especially fixing and flipping homes. In the first quarter of 2021, enterprising individuals and companies flipped 32,526 single-family homes and condos in the U.S. 

One question potential flippers ask is about types of financing for this form of investment. Specifically, what are fix and flip loans? Let’s take a look at the ins and outs of these loans and how you can use them to fix and flip investment property.

Table of Contents:

• Property Flipping Definition
• Types of Loans for Flipping Houses
• How To Get a Loan to Flip a House
• Pros and Cons of Flipping Houses
• House Flipping ROI
• Fix and Flip Loans Frequently Asked Questions

Property Flipping Definition

House flipping is the process of buying a home that needs repair or renovation, fixing it up, and then selling it for a profit. Flipping can be a good money-maker for those who are savvy about real estate, construction, and project management, but it is far from a given that it will result in a windfall – or any profit at all – especially for those just starting out. 

Types of Loans for Flipping Houses

Buyers looking to flip homes can purchase a fixer-upper using cash or seek a loan to finance the sale. Borrowers will need a strong credit score to be considered for loans, especially for risky endeavors like flipping.

There are a variety of types of loans flippers might seek to finance the investment purchase.

• Hard Money Fix and Flip Loans: Hard money fix and flip loans are based on the after-repaired value (ARV) of the home and have more stringent terms than conventional loans, usually including a term of a year or less and high-interest rates, along with two to five points. Hard money borrowers may not have to pay the points until the house sells after the flip, instead of at closing.
• Fix and Flip Line of Credit: A fix and flip line of credit provides approval to borrow a predetermined amount of money that you can then draw down as needed to purchase and rehab properties.
• Commercial Fix and Flip Loans: Commercial loans are designed for rehabbing and resale of commercial properties, provide a large loan size, often up to several million, and can be used to fix and flip multiple properties at once.
• Bridge Loans: A bridge loan is a short-term loan that can be applied to fix and flip, usually supplied by private lenders, hard money lenders, and other specialty finance companies.
• Private Money Lending: Private real estate investors may be interested in providing loans for fix and flip projects. If you’re an investor in need of a fix and fix loan, apply now, and let’s talk about your deal.
• Crowdfunding: Seeking funding from a large number of private lenders via a crowdfunding process is an alternative to working with a single private lender. 

How To Get a Loan to Flip a House

Getting a loan to flip a house is simple. Do your research, set a budget, get pre-approved, purchase, and renovate. Soon you’ll make returns and potentially see a sizable profit. 

Step 1. Do Your Research 

Study the real estate market in the area where you want to buy. Pay attention to the difference between the current value of properties you might buy and homes that will serve as comps to the home once it’s renovated.  

Tip: Get familiar with real estate prices, zoning regulations, amenities, and other aspects of a particular neighborhood, as local knowledge will increase your chances of success.