Fix and flip financing, also called hard money loans, sometimes conjures up images of boogeymen in pin-striped suits making obscure threats about what will happen if they don't get their money back on time.
Real hard money loans, though, are simply investments given to a real estate buyer by a business person who expects to make a profit off of that funding.
There's no broken knee caps, pinky rings, or other Hollywood elements involved. A hard money lender is just a private lender who often steps in when the bank won't offer the financial support a property flipper needs.
The Number One Benefit of Fix and Flip Financing
There are a lot of benefits that come with fix and flip financing. There's the speed of getting the loan, for example. These loans often have a smaller amount of paperwork involved, and the straightforward terms of what is owed and when (the average rates for fix and flip loans are 2-4 points and 9-12% interest) make them easy to understand before signing on the dotted line.
The number one benefit of fix and flip financing, though, is that the lender isn't just focused on the person he or she is giving the loan to. The lender is interested in the project.
What that means is that fix and flip loans are typically given on the strength of the real estate market, and the projections for the property, rather than on the credit history and personal resources of the person asking for the loan.
This allows real estate flippers to get the money they need to bring out a property's real potential, and make a hefty profit without the usual red tape involved when trying to secure a traditional loan. Hard money lenders are only interested in their profits, and that makes for a cut-and-dry business relationship.
Fix and Flip Loans Doesn't Have To Be Your Only Financing
While there are decided advantages to fix and flip financing (speed, personal agreement with an independent lender, reasonable terms, etc.) there is nothing that says fix and flip financing has to be the sole source of financing in a venture.
If you want to buy a house, make repairs and additions, and then sell it for a profit you can approach both traditional lenders like banks, as well as private, hard money lenders. This way a property flipper can be sure that he or she has more than enough money behind a project to handle any setbacks without having to cut corners.