Are you an investor looking to buy fix and flip homes with as little cash out of pocket as possible?
If so, we have the perfect loan for you. This is especially the case if you are looking to fix and flip a property, as our financing enables you to hold on to as much cash as possible for repairs after close. Property flippers are in fact our target market and our ideal investor.
What exactly is a fix and flip property?
A fixer property, as you probably know if you’re reading this blog, is a residential property in need of serious or significant repairs.
Properties in need of significant repairs could have a variety of issues including a leaking roof, missing floor coverings, uneven floors or foundation issues, badly worn or peeling paint, outdated electrical systems, broken or missing heating and cooling systems, water damage, missing appliances, and more.
How does our fix and flip loan work?
To take advantage of our 10% down fix and flip financing, you have to buy a property that’s in need of significant renovations, and it must be an investment property (you cannot buy the property as an owner-occupant).
Properties must be fixers because we estimate what is called an “After Repair Value” (ARV) and we use that value to determine the down payment amount. The more severe the repair needs, the lower your down payment percentage might be. Our ARV is simply an appraisal of the property “as if” all of the necessary repairs and improvements were complete. We then lend against that ARV to some extent to come up with your down payment percentage.
In many cases, your down payment percentage will be 10% of the purchase price of your fix and flip, assuming that the ARV will be substantially higher when your improvements are complete. We will not lend more than 75% to 80% of the ARV.
What is ARV and why is it important?
ARV, or After Repair Value, is a key concept in the fix and flip real estate market. It represents the estimated value of a property after all the repairs and renovations are completed. Understanding ARV is crucial because it helps investors and fix and flip lenders like us calculate the potential profit margins, ensuring that the investment is sound. It guides the financing options and influences the renovation costs to make sure they do not exceed the future sale prices.
Can you finance severe fix and flip projects?
Absolutely! For instance, while writing this blog, we’re in the process of financing a condo that was formerly used as a meth lab. This property is missing countertops, floor coverings, and appliances – and it needs a deep cleaning, substantial drywall repair, and all new paint.
The purchase price is $325,000 but the estimated market value is $475,000 once all of the necessary repairs are complete. This particular buyer should easily qualify for a 10% down payment, assuming the algorithm-based credit analysis checks out as well.
How do you underwrite fix and flip loans?
At JVM Lending, we use an algorithm to underwrite our loans. This method is far easier for us and you, and it is also one of the reasons you can’t buy a fix and flip with our financing if you want to occupy the property. We only lend to investors, and we only lend to corporations (Limited Liability, C, or S).
Our investor (that funds and buys our loans) is a commercial lender and thus not subject to residential lending regulatory requirements. As a commercial lender, our investor cannot fund loans in the names of private individuals.
What are the rates and fees for a fix and flip loan?
Our rates and fees are higher than anything you’d ever see with standard residential financing, but they are lower than the typical hard money terms that most investors are forced to take when financing fix and flips.
What should you consider before diving into your next fix and flip project?
Before you jump into your next house flip, it’s essential to evaluate several factors:
- Real Estate Market: The current state of the market can significantly affect your ability to sell the property at a desired price.
- Renovation Costs: Estimating these costs accurately is vital to avoid overspending which could eat into your profit margins.
- Holding Costs: These include property taxes, insurance, and utilities that you will need to pay during the renovation and sale process.
- Potential Prepayment Penalties: Some fix and flip loans come with prepayment penalties, which could affect your bottom line if you sell the property too quickly.
Frequently Asked Questions
What are fix and flip loans?
Fix and flip loans are financing options specifically designed for real estate investors who purchase properties, renovate them, and sell them for a profit. These loans cover not only the purchase price but also can provide funding for the renovation costs.
What does the 70 rule in flipping houses imply?
The 70 rule is a common guideline used by real estate investors which suggests that a house flipper should not pay more than 70% of the after repair value (ARV) of a property minus the costs of the repairs needed.
How can a real estate agent help in flipping houses?
A real estate agent can be crucial in finding potential fix and flip opportunities in the real estate market, advising on sale prices, and managing the sale process once the renovations are complete. We partner with several renowned agents who specialize in investment properties across the U.S. If you’d like a personal referral, contact us and we will be happy to make an introduction.
Why choose JVM Lending for your fix and flip financing?
At JVM Lending, we understand the unique challenges and opportunities that come with flipping houses. Our tailored fix and flip loans, competitive rates, and flexible terms make it easier for you to manage your cash flow and maximize your investment returns. Our expertise and streamlined processes ensure that you can focus on what you do best: transforming properties and turning a profit.
Interested in learning more about how we can help you succeed in your next real estate venture? Contact us today at (855) 855-4491 or email [email protected] to explore your financing options.
