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What is a Fix and Flip Loan? | Financing a Fix and Flip | Finding Inexpensive Homes | San Diego Market
What is a Fix and Flip Loan?
A fix and flip loan is essentially funding that a real estate investor secures to purchase a property that is in need of updates. The investor can secure these loans through various sources and in San Diego, hard money loans are often the easiest and fastest way to secure a fix and flip loan.
In the past few decades, fix and flip projects have become a popular way for individuals to make lucrative income.
According to RealtyTrac’s Quarter 1 2016 U.S. Home Flipping Report, flipping homes has experienced a resurgence in popularity this year. Over 6.6 percent of all single-family home and condo sales occurring in the first quarter of 2016 were flips, which constitutes a 20 percent increase from the previous quarter. With the home flipping industry holding strong, many entrepreneurs are considering the merits of purchasing homes, making improvements and renovations, and turning around within a few months of purchase to sell said property for a profit.
Flip a Property in Less Than 12 Months
Generally, a home flip refers to a property that is sold for the second time within a 12-month period. This can be a costly endeavor, and many real estate investors find themselves looking for lenders to help fund the project. In most cases, finding the capital to begin a fix and flip endeavor is the number one obstacle standing in the way of success. In highly saturated metropolitan areas like San Diego, properties can be costly, so a great deal of financing is vital. Fix and flip loans in San Diego are a popular route for garnering this financing.
Many Different Names
Fix and flip loans can go by many names, including investment property rehab loans, hard money rehab loans, and house flipping loans. What exactly does a San Diego fix and flip loan constitute? It serves as a short-term financing tool that enables any real estate investor to secure the capital required for purchasing, improving, and reselling a property, often resulting in a healthy profit.U
Be Prepared
Before applying for fix and flip loans in San Diego, it’s important to understand the facets of the lending process. At the onset of the process, a fix and flip lender will consider an individual’s experience in real estate, specifically in that of fix and flip projects. The lender will also consider the purchase price of the specified investment property, and take a look at the amount of cash reserves available for total costs.
It’s also important to come prepared with estimated after-repair value of the property, and consider the estimated cost of renovation efforts. These conditions can vary based on the type of loan you’re looking to secure, and vary by company and lender, as well.
Get Involved
Looking to get involved with house flipping in San Diego? Let SD Equity Partners provide you with the San Diego fix and flip loans you need to purchase a home and get started on your entrepreneurial endeavor.
Financing a Fix and Flip Loan
There are several ways to secure San Diego fix and flip loans and other forms of financing for a house flipping venture. Rehabbers generally explore three different avenues for house flipping funding. These include hard money loans, bank financing, and crowdfunding.
Hard Money and Private Money Loans
San Diego hard money and private money lending are the most popular forms of financing for new and experienced house flippers. Hard money loans come from a small group of investors that lend money to house flippers for a specified project. Private money lending is similar, but tends to involve a singular investor that generally funds smaller projects. More flexible and quicker to acquire, hard money loans are often the ideal financing option for those looking to flip homes in San Diego.
Qualifying for Hard and Private Money Loans
Finding hard money fix and flip loans in San Diego requires less stringent qualifications than other, more traditional forms of financing. Hard money and private money loans are generally the easiest loans to qualify for, which makes them a popular route for novice home flippers. If you’re just beginning your career as a home flipper, SD Equity Partners provides fix and flip loans with lenient qualifications to ensure you can purchase a home and begin renovations as quickly as possible.
Generally, the minimum qualification criteria for San Diego hard money loans require a credit score of over 600, a debt-to-income ratio of under 35 percent, and no recent bankruptcies or foreclosures under your name, but this can vary by lender.
Bankruptcies are not always a problem!
Sometimes, foreclosures and bankruptcies may be overlooked so long as the borrower has the right amount of capital to handle the interest on a loan, but this varies by situation and lender. You’ll also need to have a bit of your own capital to use, as fix and flip loans in San Diego require each borrower to have a little skin invested.
SD Equity secures every investment with the real estate trust deeds to the properties invested in. Generally, lenders will loan based on the current value of the property, rather than the after-repair value, but there are exceptions to this rule.
Understanding Loan to Value Ratios (LTVs)
Depending on the fix and flip lender, and the real estate investor’s needs, loan to value ratios (also known by the acronym LTV) can vary greatly. Generally, loan to value ratios range between 65 to 80 percent of the value of the property. Many mistakenly assume that hard money loans provide the full amount of financing needed, but lenders require the borrower to invest their own equity in the project, as well.
100% Financing
However, SD Equity Partners understands the importance of obtaining the full amount needed to fix up a property, and often helps our clients by funding a real estate project with s San Diego fix and flip loan that provides up to 100 percent financing.
Timeline for Hard Money Financing
SD Equity Partners works with our clients to finance their projects as quickly as possible, often approving loans within a few days’ time. Generally, hard money loans are funded within the first two weeks, making it easy for rehabbers to get started on a project immediately.
Loan Terms
Most San Diego fix and flip loans are written for terms between 1-2 months, and hardly ever for a time period exceeding 12 months. There are longer loan periods available, but usually, home flippers are looking to complete a project and sell it for a profit within a quicker timeline. Not only does this see income from a purchase in a more immediate timeframe, but it also saves the investor from ongoing loan costs, utilities, insurance costs, and property taxes, among many other holding costs.
Higher Risk
Hard money lenders do take on more risk with their loans, and because of this heightened risk, interest rates are generally higher than conventional loans. These interest rates can range from 6 to 15 percent depending on location and the specific lender.
Partnerships
A partnership may be in your best interest for financing a fix and flip if you have no capital to use. Partnerships work similarly to private money loans, except generally the loan is paid off with a portion of the profits made from the actual sale. Generally, it’s cheaper to pay an investor the interest rate on the money invested, instead of a percentage of the profits, which can make a partnership an ill-advised financial strategy based on the situation.
Family, Friends, and Strangers
A partner may be a family member, friend, or complete stranger. Generally, a flip investment would require you to handle the renovation, flipping, and sale of the home, but you will share the profits 50-50. A partnership is a generally mutually beneficial way for two individuals to invest in real estate; one person has the time and desire to put in the work renovations require, while the other has the capital but may lack in time to actually work on the project.
Market Knowledge
One or both parties must have local market knowledge, detailed rundowns on expected costs, and contracted agreements about who will do the work and what the distribution of the profits will be.
Crowdfunding
Crowdfunding is another way investors have looked to secure financing for their fix and flip projects. This is a relatively new finance option that appeals to experienced home rehab professionals. Crowdfunding allows rehabbers to get in contact with investors looking to invest in fix and flip ventures. Once the rehabbed property is sold, the rehabber then pays off the investor. This can be a quick way to secure financing for a fix and flip endeavor.
Financing Available
Crowdfunding financing may provide up to 85 percent of the purchase price, or it may provide up to 65 percent of the After Repair Value.
Qualifications for Crowdfunding Financing
Generally, only experienced flippers qualify for crowdfunding financing in terms of fix and flip loans in San Diego. Most crowdfunding sites and companies require that flippers have proven success in house flipping, and investors will take a look at your credit score and financial capabilities.
Loan Terms
Crowdfunding loan rates generally have interest rates of 8 to 14 percent, and generally the loans are designated for 6 to 12-month periods. You may also pay an origination fee, which generally is taken out of your loan before you receive the funds.
Bank Financing
When considering ways to fund a real estate venture, many individuals immediately think of mortgage brokers and other traditional lenders. However, securing fix and flip loans in San Diego from traditional lenders like banks can be difficult.
Financing Available
Typically, banks that lend to experience flippers will provide up to 65 percent of the purchase price of the home, covering less of the costs than other financing options might offer. As the loan is much smaller, you’ll need to be prepared with other capital from various sources to ensure you have enough to cover purchase and rehab costs.
Qualifying for Bank Financing
Securing a loan from a traditional lending source like a bank is the most difficult way to finance a fix and flip in San Diego. Usually, borrowers must have a registered business that has shown proven success in rehabbing for a profit, with at least two years of successful fix and flips under their belt. Many banks also require a debt service coverage ratio of at least 1.25. This refers to your business’s monthly net operating income divided by your total monthly debt payments. Depending on your location, you might also need a varied array of licenses and permits to flip homes in particular counties and cities.
Timeline for Bank Financing
Securing a San Diego fix and flip loan from a bank or other traditional financial institution can take upwards of three months. Expect to wait at least one month to secure the fix and flip loan you need. Conventional loans generally don’t appeal to house rehabbers, as they’re in search of quick money to immediately begin repairs and have the rehabbed home in question ready for the market sooner.
Loan Terms
Bank loans generally come with the lowest interest rates, usually found in the range of 5 to 6 percent. You may also pay small upfront fees and intermittent draw fees on a line of credit. Most banks require a minimum payment amount due each month. Local banks are more likely to approve fix and flip loans, while national banks are much harder to finagle.
Out of these four financing options, hard money fix and flip loans in San Diego are by far the easiest to acquire, making them a popular route for many borrowers and investors looking to get into the home rehabbing industry. SD Equity Partners has provided numerous home rehabbers the funds they need to begin the fix and flip process.
Finding Inexpensive Homes
Finding the right home for a fix and flip venture is of first priority, but in order to purchase a property, you’ll need to have your finances in place. It’s important to be pre-qualified with a lender for a San Diego fix and flip loan, as this will enable you to make an offer immediately, with no time wasted. If you’re searching for a home in a competitive market, this factor could be the make-or-break aspect behind your purchase.
Time Factors
Low inventory and a hot market can combine for rising prices, so when you locate an inexpensive home, it’s in your best interest to be fully prepared.
Partner With a Real Estate Agent
If you’re having a hard time finding a home to purchase, consider partnering with a real estate agent, at least at the start. Licensed real estate professionals generally have access to a database known as the MLS, or Multiple Listing Service. This database is run by real estate brokers who list all properties for sale within any given geographic area, and includes each property’s stats and characteristics. This can grant you a comprehensive look at all of the properties in an area, and help narrow down a search, saving valuable time, which is especially important in a hot market like San Diego.
What About Auctions?
While auctions are a great place to find deals on foreclosed homes and properties under market price, generally you won’t be able to bid on properties without the full amount of capital on-hand.
San Diego Fix and Flip Loan Investing
If you’re an investor looking to earn a high return on your funds without actually managing the rehab of a property yourself, SD Equity Partners can put you in contact with searching rehabbers. Fix and flip loans allow you to make fast cash on an investment, and gives you the route in which to revitalize communities in your immediate area.
Investing in hard money fix and flip loans in San Diego provides a measure of flexibility that other investments may not. Diversify your portfolio and use our streamlined process to make more with your capital.
Invest, Flip, Repeat
Hard money San Diego fix and flip loans have enabled thousands of investors to pursue their real estate business ventures. With quick approval rates and almost-immediate access to a large percentage of the capital you need to purchase and repair a home, hard money is a viable choice for any house flipper, whether you’re in the beginning of your rehabbing career or you have numerous successes under your belt. When applying for a hard money fix and flip loan in San Diego, always be sure to use a reputable company committed to helping you reach your financial needs for a home flipping project.
SD Equity Partners is Your Top Choice
There are many companies that offer hard money fix and flip loans in San Diego, but SD Equity Partners is committed to staying by your side every step of the way. With proven success, an ever growing network of investors, and a commitment to helping our clients succeed in their home rehab ventures, we remain the best choice for San Diego fix and flip loans.
Whether you’re a borrower looking to get into house flipping or you’re an investor wanting to make the most of your money, SD Equity Partners can help you with your fix and flip business pursuits. Apply today and get started on your house flipping endeavor.