Racecars, Cheetahs, and Fix and Flip Loans: The Need for Speed
Speed matters. It can be the difference between winning the Indy 500, catching tonight’s dinner, or making a profit on a real estate fix and flip project. Many real estate investors turn to hard money loans to finance the purchase and renovation of rehab properties, and the need for speed is one of the chief reasons why.
How can you “win the race” in the real estate renovation world?
Renovation projects are extremely time-sensitive and require funding sources that can respond quickly. Here’s why:
• Quickest Money Gets the Deal: In a high-density area like Washington DC, the competition for the suitable fix and flip properties is intense. When foreclosed, abandoned or dilapidated housing stock comes onto the market, it’s often the developer with the quickest access to funding that snaps up the property. If you can’t arrange to fund within a couple of days, you might miss a great deal.
• Timing your Sale: In most areas, the optimum time to sell a fixer-upper is constrained to a several-month buying season, usually starting in early spring. This means you ideally time your purchase and the completion of rehab to coincide with the selling season. A speedy private loan, available as soon as you need it, is the key to the proper timing of your rehab project. A recent Zillow study puts the magic window to sell between mid-March and mid-April, depending on variables such as location and weather. Homes sold during this window sold 15 percent faster and for 2% more. That’s real money in your pocket.
• Flexibility: Fix and flip or construction loans are often structured with a draw schedule, so that funding is released each time you reach a given benchmark (permitting, framing, etc). This ensures a steady flow of funds throughout the project. However, cost overruns and construction delays can occur, and developers often increase the project scope or timeline after initial funding. Whatever your reason for needing additional funds for your project, waiting for a new loan can slow the project down. Hard-money loans can be structured to include several phases, drawing on phase two or three only if needed, and money can be disbursed as quickly as the same day, so that there need not be any interruption to your project.