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The Dos and Don’ts of Pursuing Private Lending for Fix and Flip Projects

Some projects, property purchases, and investments are uniquely suited for fast financing. And while hard money loans such as fix and flip, bridge, rental, land, new construction, and commercial loans provide quick financing, there are things you should look for – and look out for – when pursuing private lending. In this blog, we’ll focus on fix and flip projects and why financing them via private lending can be beneficial, what you should do and shouldn’t do when seeking these loans, common pitfalls to avoid, and why you should consider RBI Private Lending for your next fix and flip investment.

Why are Private Lending Loans Well Suited for Fix and Flip Projects?

Like a traditional mortgage, a hard money loan is secured by the purchased property. But unlike a traditional mortgage or other secured loan, a hard money loan has a quick and usually less stringent approval process, which means the funds are available faster – making this type of loan perfect for purchases that need to happen fast. Mortgages often take 30 days or longer to close, while private lending loans can close in a matter of days.

Buyers that flip homes can buy a fixer-upper using cash – but many must seek a loan to finance the sale. When pursuing financing, borrowers typically need a strong credit score to qualify for a hard money loan because flipping can be a somewhat risky endeavor.

Hard money fix and flip loans are based on the property’s after-repaired value (ARV) and have stricter terms than conventional loans. Their terms are often a year or less and typically come with higher interest rates, sometimes also with points that may not have to be paid until the house sells after being flipped, rather than at closing.

At RBI, the initial draw is calculated based on the as-is value of the property and the renovation budget is advanced in construction draws.

Pursuing private lending for fix and flip projects offers these distinct benefits:

  • Liquidity – You’ll enjoy having regular access to the cash you need to keep your project moving forward.
  • Build your reputation – The more projects you complete, the better your track record looks for future projects with lenders.
  • Capitalize on opportunities within the current market – You can act fast when the time and property is right and close the deal.
  • Minimize carrying costs – Private lending means a shorter holding period, thus reducing your expenses such as the mortgage payment, property taxes, insurance, and utilities.

When embarking on identifying a lender and private lending loan for your fix and flip project, there are a number of things you should and shouldn’t do to ensure you get the best financing for your property.

The Dos

  • Do your research – Be sure to identify reputable hard money lenders with experience in fix and flip financing. Consider their interest rates, loan terms, and reputation in the industry.
  • Network your business with professionals – Establish relationships with local real estate agents, contractors, and appraisers. And be sure to seek recommendations for reliable professionals with a track record of success.
  • Create a strong business plan – Clearly define your goals and strategies for the fix and flip project, including detailed financial projections and contingency plans. This will help your hard money lender quickly evaluate your renovation costs, down payment, and purchase price.
  • Only focus on properties with the potential for a quick turnaround – Identify properties in desirable locations with high demand. And for an easier, more cost-effective, and faster ROI, look for properties that require more cosmetic updates rather than structural renovations.

The Don’ts

  • Don’t ignore qualification requirements – When seeking financing for a fix and flip project, you should know what can help – or hurt – your chances of getting qualified and approved. Because the property itself is used as collateral for the loan, the “quality” of the real estate transaction is more important than the borrower’s creditworthiness when qualifying for the loan. Private or hard money lenders will examine the business deal and the feasibility of the project and develop a strategy to help you pay the loan off before it matures.
  • Don’t operate outside of a realistic budget – Conduct a thorough cost analysis, including renovation expenses and carrying costs. And avoid underestimating the time and money required for the project.
  • Don’t rush the due diligence process – Perform thorough property inspections and evaluations and be sure to verify the property’s title and permits, as well as any legal or zoning issues.
  • Don’t overlook the importance of accurate property valuations – Consult professionals for accurate appraisals and comparative market analyses. The goal is to avoid overpaying for properties as it can lead to financial difficulties.
  • Don’t neglect marketing and selling strategies – Be sure to create a comprehensive marketing plan to attract potential buyers, and price the property competitively. Also consider staging or virtual tours to help market your property successfully.

Four Common Pitfalls to Avoid

Several common mistakes that many fix and flip borrowers make can slow or impede the success of their projects and financing options.

  1. Inadequate contingency planning: Things happen. Contractors don’t work out. Unexpected construction obstacles arise. Materials are delayed. Borrowers that lack contingency plans which consider things that could delay the project or impact projected costs are often left without the financing they need to cover their projects through to completion.
  2. Overleveraging and excessive borrowing: Relying on borrowed funds without considering profitability can lead to unstable financials down the road. The higher the debt, the harder it will be to maintain a good cash flow for projects.
  3. Lack of communication with contractors and professionals: Poor communication can lead to delays, extra and unexpected costs, and poor quality workmanship due to poor team coordination.
  4. Ignoring market trends (and failing to adapt): When you ignore trends in the market, you can easily miss out on prime opportunities. Successful fix and flip investors constantly monitor and stay updated on market trends.

Private lending loans can be an ideal solution for a fix-and-flip enthusiast who needs financing to purchase a property, renovate it, and resell it for a tidy profit. But you must do your due diligence when selecting a hard money lender. Research lenders in your area and solicit recommendations from other professionals you trust. Surround yourself with team members who have a strong fix and flip track record, and only choose properties in decent areas that have the potential to sell quickly. Also, be sure you can qualify for a fix and flip loan – by having a realistic budget, performing the requisite property inspections, obtaining an accurate appraisal, and developing a sound marketing plan.

At RBI Private Lending, we encourage all those who engage in fix and flip projects to pursue private lending loans responsibly to ensure successful outcomes. RBI offers fix and flip purchase and construction loans for a range of property types with loan amounts up to $5 million and terms between 12 and 18 months. The usual amount of time to close is 10-15 days.

The trusted team at RBI Private Lending is here to make sure you are on the path to success. Our group comprises experienced professionals who will provide financing tailored to your needs. With years of experience in the industry, we are confident that we will accomplish your goals by quickly providing you with a competitive proposal and the service you deserve.

You Have Questions and RBI has Answers!

What Do I Need to Qualify?

Of course, the most important thing you need is a viable fix and flip property and plan. Choosing the correct investment properties is key to the success of real estate investors as they act as real estate flippers. Here are the documentation requirements of our flip loans at this time. You can always find the latest information by clicking here.

  • Credit application
  • Last two bank statements (U.S. bank account)
  • Copy of ID and borrowing entity docs
  • Purchase contract (if purchasing)
  • Project budget/Scope of work
  • Approved plans (if applicable)
  • Track record sheet
  • Contractors’ information
  • Property insurance

What is a Fix and Flip Loan?

Fix and flip loans are short-term loans used by real estate investors to purchase and improve a property to then sell for a profit or refinance. These improvements range from minor renovations to a complete reconstruction of an existing home. The initial draw is calculated based on the as-is value of the property and the renovation budget is advanced in construction draws. To learn more about our fix and flip loan program, click here.

Why Should You Choose RBI Private Lending as Your Fix and Flip Lender?

Experience and Expertise: Our team of experienced professionals is ready to provide tailored financial services that meet your unique needs. With years of hard money loan industry experience, we are confident in our ability to help you achieve your goals. Our flip loan programs offer a fast closing, and as a local lender serving Florida and beyond, we understand what you need in your flip loans. In less than 48 hours, we will deliver a competitive proposal that sets us apart from the competition. Expect nothing less than exceptional service from us for your next house flipping loan.

The RBI Private Lending mission is to provide efficient and personalized solutions for real estate investments. Our vision is to lead all private lenders in serving real estate investors while preserving high standards and quality service.

How Much Can I Borrow with an RBI Real Estate Fix and Flip Loan?

As a real estate investor, you probably want to know, “What are the loan amounts for Fix and Flip loans?” Currently, our fix and flip lending limit is $5,000,000. Your loan limit will depend on the project and the property type, such as rental properties, residential properties, their repair value, etc.

What are the Full Loan Term Details for a Fix and Flip Loan with RBI? 

Many private or hard money loan companies have flexible terms to meet the needs of their clients seeking flip loans. RBI Private Lending is proud to be among the industry leaders, providing flip loans with greater terms and loan limits. At time of publishing our terms are listed below for loans on a per-project basis:

  • Max Loan Amount: $5,000,000 
  • Max LTC/ARV (Loan to Cost / After Repaired Value):
    • Experienced Investors: The Lesser of 85% LTC or 70% ARV
    • Inexperienced Investors: The Lesser of 80% LTC or 65% ARV 
  • Rates: Starting at 9.99% 
  • Term of loan: 12-18 months 
  • Payments: Monthly Interest Payments with Balloon at Maturity 
  • Prepayment penalty: None 

Please check here for current terms.

Do You Lend for Construction or Repairs?

By their nature, fix and flip loans cover a portion of the property purchase and the subsequent repairs and upgrades. Unlike traditional loans and conventional financing, we help those flipping houses in ways that a traditional bank cannot. Our program is a private money loan targeted to the needs of fix and flip investors; you will not need a separate construction loan or bridge loan. Our flip loans are not traditional home loans offered by credit unions or other traditional lenders. RBI offers hard money loans to fund flip deals; traditional home loans and traditional banks are not focused on serving private investors.

What Types of Properties Do You Lend To?

Property Types:

  • Condominiums
  • Single-family residences
  • Two to four units
  • Multi-family homes
  • Townhouses
  • Other property types on a case-by-case basis

Do You Lend to Companies or LLCs?

Yes, most of our deals are closed under an entity (Corp., LLC, Inc., etc.). These are investment loans, intended for business purposes. Hard money lenders like RBI have flexible terms and the ability to fund a new loan for fix and flip projects and other investment properties. Click here to learn about all our hard money loan programs.

Do You Lend to People From My Country?

RBI is happy to lend to foreign nationals. We speak Spanish and English to support real estate investors from many countries. Unlike traditional lenders, private and hard money lenders make decisions on the project’s viability and the investor’s reputation and experience when making flip loans or other loan types.

Conclusion

Consider these three points when looking for your next flip loan. RBI, as one of Florida’s leading flip lenders, beats a traditional mortgage every time by offering short term loan programs targeted to rehab projects and the needs of home flippers.

  1. Private lending loans have a quick and less stringent approval process with funds available faster than traditional mortgages.
  2. Hard money fix and flip loans are secured by the property’s after-repaired value (ARV).
  3. Private lending offers liquidity, opportunity, and fewer carrying costs compared to traditional financing options.

Get started today!

For more information about our fix and flip loan program, click here. Contact us today for rate information and qualifications for your specific needs: call 800-668-1004 or email contact@rbialliance.com.

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