What to Do Before You Apply for a Fix and Flip Loan
Considering investing in a fix and flip property? This can be a great project and an exciting investment that can help you make money in the process. However, the biggest question that people tend to have about fix and flip investments is how exactly to pay for the initial home investment. While most people would love to be able to pay cash for their loan, the average person simply does not have that much in their account. The good news is there are a number of different lending products out there that can help you finance these flips and get that initial money you need to get your investment off the ground.
However, before you apply for a loan, such as a hard money loan, there are a few things that you should do to help with the process and to make sure everything goes smoothly. Here are our biggest tips to preparing for your fix and flip loan.
- Make a Business Plan for Your Flip. It seems like these days everyone is looking to get into the fix and flip market. In order to show lenders that you are serious, you need to create a business plan. THs information will not only help lenders take you seriously, but help you make sure that you get a loan that will help you cover your costs. This should include some basic information on the property, such as:
- The location
- An analysis of the neighborhood and comps for the area
- Your strategy and timeline for the project, including the “scope of work” and financials
- Background information on the team who will be helping you with the project
- Back up plans in case your renovation doesn’t go as it is supposed to
- Current value of the property from an appraiser
- Get An Accurate Estimate for Renovations. Obviously one of the biggest expenses involved with a fix and flip is the actual flipping part. Renovations can be as much or even more than the initial property investment, so you need to have an accurate assumption of how much they are going to cost, so you can get enough to cover these expenses. Remember, it is always best to overestimate instead of underestimate on these expenses so you don’t end up in over your head. It’s always best to have a pro on your side to help you with these types of estimations
- Know Your LTVs and ARVs. Before you head into talk dollars and cents with a lender, it is important that you know your LTVs and your ARVs. A LTV is a comparison of your loan size to the value of the property. Typically, the absolute maximum LTV on a fix and flip loan is 90%, but most products are much less. This means, you will need to provide the remaining amount in cash as a down payment. The ARV on the other hand is the appraiser’s estimate of property’s value after the renovations are done. There are many lenders who will quote your loan based on the ARV.
Keep these tips in mind if you are considering a fix and flip loan. Being prepared when you apply for your loan can only help expedite the process and make certain that everything goes smoothly so you can make this exciting new investment opportunity a reality.