If you are considering going into short-term real estate investment, then you may want to consider the idea of fix and flip loans. So, what are they? Why is this loan better than other property loans? Let’s take a look.
What is a Fix and Flip Loan?
A fix and flip loan is a short-term loan, often for no longer than 1-2 years in length.
These loans have been designed for those that want to make short-term investments in property. This means investments that last for around a year, sometimes even less than that.
These loans are mostly used by people that purchase properties for a cheap price with the intention to flip them, hence the name. The loan will often cover the cost of purchasing the property, as well as the cost of renovating the property in order to flip it.
What are the advantages of this loan?
This is not a mortgage. If you take out this type of loan, you are not going to be tied into decades of repayments. It is purely for those that are able to pay off their loans in under 2-years.
That being said, a fix and flip loan does share similarities to a mortgage. This is because it is a secured loan i.e. it is secured against the property that you are purchasing. This means that if you fail to pay the loan back, the lender can seize your property. Of course, being a secured loan means that you will have an easier time being able to obtain the cash. They are great for those that are just getting started in property investment and may not have huge sums of cash at their disposal.
As we said, they are also short-term loans. Unlike a mortgage, you will face no penalties if you pay off the loan early either. In fact, you are encouraged to do that. So, if you sell a property within a couple of weeks of purchasing it, you will be able to pay off your loan right away. It is a great source of funding.
Fix and flip loans tend to be a lot less complicated than your traditional mortgage too. Many of these loans actually come from private investors as opposed to traditional banks. This means that you do not have complicated terms and conditions to understand, and the funding will often come through a whole lot quicker.
Finally, these loans are often going to cover a lot more than the purchase price of the property too. For example, the loan may also cover repairs, renovations, and even the fees to resell the property. This is because they have literally been designed for flippers.Â
ConclusionÂ
If you are serious about real estate investment and you do not have your own reserve funds to play with, then we suggest that you consider a fix and flip loan. They are a brilliant way to get yourself on the investment ladder without having to navigate complicated mortgages or source funding elsewhere.
