Fix and Flip Funding Do’s and Don’ts

A good fix and flip loan has always been an important part of the smart house flipper’s plan of attack. Yet, in the current market place, where distressed properties are harder and harder to come by, fix and flip funding has become absolutely essential. While low-end fix and flip opportunities have started to disappear, luxury house flips are on the rise.

House flippers working in wealthy areas like San Francisco, San Jose, Los Angeles, and San Diego are making upwards of $150,000 gross profit per flip. That kind of pay off just doesn’t happen without a large upfront investment. As Redfin recently reported, rehabbers flipping homes in the Sunset District of San Francisco last year made an average gross profit of $225,600, but their average pre-flip cost was $666,300. That’s no small sum, which is why house flipping loans are so important.

Finding the right loan can be tricky. There are a lot of companies out their claiming to offer the biggest loans, the best terms, the highest success rates… but who can you really trust? Here are our DOs and DON’Ts for choosing the fix and flip loan (and the lender) that’s right for you.

First up, the DON’Ts:

• -Don’t apply for a hard money loan. Hard money lenders are rarely reputable, and the terms of their loans tend to be less than fair. Hard money lenders act as brokers – they have no control over the capital they lend – so they have little interest in forming lasting business relationships or ensuring good outcomes for the borrowers. If a hard money lender is the only person who will approve your application, you should probably rethink your investment.
• -Don’t wait until the perfect property comes on the market to start researching private money lenders. Do some initial research to figure out the size and type of loan you’d like, then find a reputable lender who can provide you with pre-approval when that perfect investment opportunity pops up.
• -Don’t waste time on a lender that isn’t prompt to respond, reliable, honest, or experienced. If you can’t get a straight answer to your questions or feel that you are being pressured to sign on the dotted line, start looking elsewhere.

Now, the DOs:

• -Do your research. Ask to talk to past and current clients of your lender. Learn what their reputation is from reputable sources. Compare terms from lender to lender, and ultimately choose someone that you feel has your best interests at heart.
• -Do the math. You can’t expect your lender to hold your hand throughout the investment process. They should be able to provide guidance and advice, but ultimately it’s up to you to crunch the numbers and determine whether or not a particular loan or a particular investment is worth the effort.
• -Do ask the hard questions. Make sure you have a thorough understanding of what you’re getting into before you lay any money down. Better to ask a dumb question up front then to realize your question wasn’t actually dumb at all after you’ve invested hundreds of thousands of dollars.