Posted on October 8, 2010 - 05:29
Today I want to talk about fix and flip real estate loans and when it is appropriate to get a fix and flip loan and when not. I just want to tell you about some experiences that we have seen as one of the experienced Hard Money Lenders.
Only about 10 years ago banks were willing to do financing and they actually finance as many properties as you will be able to purchase but you have to get what is called subprime loan. Subprime loan means the loan was typically for people who have bad credits but if you had good credit subprime lenders would actually do loans for you more than traditional lenders or paper lenders would do. One of things you can find out; one of the niches that were out there is that subprime lenders would allow a paper borrowers to actually do loans on non-owner occupied or rental properties. You see the A paper lenders would only let you have up to 3 that change to 5 and eventually went up to 10 and then it went back to 3 and there are some rumors it is more than that but so many properties that the A paper lenders would allow you to get.
In the old days about 5-10 years ago the subprime lenders if you have good credit would lend you money on a non-owner occupied and they would do that. When it comes to fix and flip lending, one of the important things is to decide what type of financing you really need. So there are few things to be aware of; some people think that they are going to do a fix and flip loan. They will just go down to bank because they have good credit and they will actually get a loan. There is a problem that banks don’t like short-term loans. It takes a couple of years for a bank to recoup their investment into the loan to actually make their money, so they want a loan to be held for five years; what they are targeting actually. I mean they really like the loan to be held for 30 years but on average 5-7 years is the target for them.
So if you go down to the bank even if you could qualify for a loan with a bank, which is the first hurdle, the bank gives you that loan if you fix up a property and resell that property and pay off their loan in six months or less. The banks are going to be kind of test off about that and in most cases it is going to hurt your credit scores because you took out a long term financing, 30-year financing, and you paid it off in a short period of time.
So there is couple of considerations when you are looking for fix and flip loan. If you want to go down to a bank it might work the first time. I am not saying that it won’t but if you do get it the first time two things are going to happen. One it can hurt your credit, I am not saying it always will but it has the potential to do that and number two the banks are not going to be happy when you paid off fast because they want long period of time.
So when it comes to fix and flip loans I think your best choice t is going to consult hard money lenders. Hard money lenders are basically designed to do short-term financing for real estate investors and basically they lend based upon the assets regardless of your credit as long as you don’t have any judgments and you are not wanted by the IRS or FBI type situation. Then you are going to be able to get a loan as long as the value of the property is good enough. So it is an asset based Hard Money Loans based upon the value of the property not based upon you and your stool samples. It is not going to hurt your credit scores. Most hard money lenders don’t report the credit unless they have to go into a collection situation. Secondly you are not going to have to go through rigermoral paperwork and get your blood pricked and go through a long drawn out process like a bank could have you do.
The Article is about fix and flip of residential real estate investments in USA. It provides the best funding option for fix and flip and that is Hard Money Loans as they fund on the basis of asset evaluation and it’s for short term with fringe benefits.