Rehab, or “Fix and Flip” Loans provide an excellent means of funding the re-development and/or restoration of Residential Properties. Rehab Loans cater to Real Estate Investors seeking to acquire an Investment Property and fix it up and then either sell it, or rent it out and refinance once complete. In contrast to a traditional Mortgage, a Fix and Flip Loan is a short term Loan that typically undergoes a swift underwriting process and therefore is often geared for a prompt closing. Real Estate Investors who specialize in Property renovation typically follow a pretty simple business model – Buy a Property at a lower price, renovate it, and then sell it for a higher price than the total Investment.
WHERE DO I START?
AM I ELIGIBLE?
Our initial recommendation for Rehabbers is to carefully assess their own, personal eligibility position, which may include your experience with renovating Property, the amount of Cash that you have available, as well as your personal credit rating. These elements are crucial in determining both your eligibility for a Fix and Flip Loan and/or the associated terms.
With that being said, beginners have to depend more on their personal credit and financial position in order to secure financing, whereas seasoned professionals can use their experience in House Flipping to secure more preferable Loan terms.
WILL THE PROPERTY WORK?
Start by gathering detailed information about your Fix and Flip project, including the current value of the Property, a thorough Scope of Work with the associated costs, how much the Property will be worth once complete, and a realistic timeline for the cost estimation.
Having a clear grasp of your project’s expenses allows for a more accurate assessment of your funding potential, and by having a clear and detailed overview, you can screen a Property more effectively and develop your investment strategy accordingly. This process is not only essential for successful project management but also ensures that your Rehab project will be a profitable endeavor.
AND DON’T FORGET THE 70% RULE!
Most Rehabbers are well-acquainted with the 70% Rule. Essentially, this “Rule” suggests that an Investor should not pay more for a Property than 70% of a Property’s After-Repaired Value (ARV) minus the associated repair costs. The ARV represents the potential selling price of the Property after it has been refurbished. Before purchasing an Investment Property, it’s advisable to do your “due diligence” and obtain a more accurate resale estimate and even go as far as consulting with Contractors to determine the anticipated repair expenses.
The formula for the 70% Rule is: After-Repaired Value (ARV) ✕ .70 − Estimated repair costs = MAX Purchase Price!
REHAB LOAN HIGHLIGHTS:
GENERAL GUIDELINES:
• Min 620 FICO (<620 on a case by case basis)
• 100% of Renovation Capital
• Up to 90% of the Purchase Price
• Up to 70% ARV
• ADUs acceptable
• No Experience needed
• No prepayment penalty
• No Income verification
• Interest only monthly payments ONLY on what you use
• Foreign National Programs available
• Loan Amount as low as $50,000