Purchase Rehab Fix and Flip Financing
Do you need financing for your Real Estate Investment Business? Today there are funding options for whatever strategy you have chosen to pursue, including The “Buy and Hold”, Fix and Flip”, or “Wholesale” strategies.
As a Real Estate Investor who focuses on residential 1 to 4 unit non owner occupied properties you would know there are three major investment strategies. In the past most investors led by Realtors often focused solely on the buy and hold strategy. This is still a great strategy today. It is the best option for people who are looking for a lasting long term income, even retirement income and or to leave a legacy for their family. Personally, the buy and hold strategy is a major part of my wealth building goals.
But the program I am most excited about is fix and flip investing. This strategy requires you to buy property at a low price, renovate and sell the property for a great profit. By only doing three or four good transactions a year you can make one hundred thousand dollars or more annually. One of the most important elements of making a great living investing in properties that need to be renovated is to have adequate and readily available funding.
There are no options for conventional rehab financing for borrowers looking to finance the purchase and renovation of investment properties. Frankly banks and other conventional sources are missing this boat. That leaves the bulk of this funding to Private Money or Hard Money Lenders. Private Money Lenders can be individuals, small funds or large institutional funds that focus on funding the purchase rehab transactions.
Quite often Private Money Lenders are Asset Based Lenders whose underwriting criteria focus on the value of the property and the experience of the investor. When a Private Lender looks at the value of property they will typically lend a percentage of the “AS IS Value” (AIV) for the purchase and a percentage of the “After Repair Value” (ARV) for the renovation of the property. At one time there pretty uniform lending criteria, but today the amount of money these Hard and Private Money Lenders are willing to lend vary greatly. You can expect terms as low as 65% of AS Is Value or 70% of Purchase Price to as high as 100% of Purchase Price. Pretty standard in the marketplace is 80% of Purchase Price.
Likewise, these funds will lend up to 100% of funds needed to rehab a property limited by the After Rehab Value. Typical maximum ARV limits range from 65% to 75%.
When choosing a lender (or qualifying for a fix and flip loan) there are other important guidelines to be aware of.
To name a few important guidelines you need to know there is:
1) Experience – How projects has the investor successfully completed and how many have been completed recently.
2) Credit – The investors Credit Score and Credit Profile.
3) Financial Strength – How much money does the investor have and how much will they have as a financial reserve.
4) Cash Flow – Will the investor have the ability to make mortgage payments.
5) Character – quite often private lenders search the public records to ensure they are dealing with quality people they are investing there private and often personal money in.
Remember when you are a fix and flip investor there can be great financial reward. There can also be great risk. The purchase rehab private money lender is your partner. They will share the reward and to a greater extent they share in the risks. These Hard Money Lenders are investing in you the fix and flip investor. They are not just making a loan.
FBC Funding is a nationwide financing broker for fix and flip or purchase rehab funding. We have multiple lenders with varying guidelines to help novice and experienced investors meet their financing goals.
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