Flipping property is a popular investment option for both individuals and institutional investors. Fix-and-flip loans help bridge the gap between the buyer’s capital and the property’s purchase price and renovation costs. These loans are short-term in nature and are typically repaid with proceeds from the property sale. But this is just the beginning. Let’s take a look at what fix-and-flip loans are and how to start financing a real estate flip.
Fix-and-flip loans are short-term loans used by real estate investors to purchase and improve a property to then sell for a profit. These improvements range from minor renovations to a complete reconstruction of an existing home. Fix-and-flip loans are used exclusively for residential real estate investments, so renovating a school, for instance, would not qualify for this type of funding.
In a fix-and-flip project, the property is often purchased at auction, through a foreclosure or a bank short sale. A buyer may later try to sell the property “as-is” or may choose to add value by improving on the property before selling it. This is where fix-and-flip loans come in. When a buyer decides to upgrade and resell the property for profit, fix-and-flip loans are typically used to cover the upfront costs of renovating the property.
There are several different fix-and-flip projects. Oftentimes, fix-and-flip investment offerings are diversified and can include the following:
The demand for fix-and-flip loans generally stems from capital inefficiencies in the current lending marketplace. These relatively short-term loans create opportunities for investments that potentially provide attractive yields for investors. In addition to this, fix-and-flip loans have other benefits:
There are many components that make for a successful fix-and-flip. The buyer must be knowledgeable about the market, able to source properties at an appropriate price, able to assemble and manage a team to efficiently execute improvement plans, and able to obtain funding to finance the project.
Sometimes, however, there are situations in which obtaining a loan from a bank or traditional lender may take too long or be too costly for the borrower. Additionally, the circumstances surrounding fix-and-flip investments may fall outside of the stringent requirements for bank loans. Here are some reasons why traditional bank loans may not be the best option for fix-and-flip investors:
That said, there are a variety of alternative financing options for buyers looking to obtain fix-and-flip loans. Depending on the investor’s experience and financial circumstances, they can choose between different types of real estate lending options with varied interest rates, fees, and qualification requirements. Though there are more to choose from, these are two popular financing options:
A hard money loan is a short-term financing option, with terms ranging from a few months to a few years, where the real estate serves as collateral. They tend to have lower qualification requirements and higher interest rates, averaging around 10-15%, plus points. These points are a percentage of the total loan amount. If the points are equal to 2% of the loan amount, a borrower requests a loan of $100,000, and the lender charges 3 points, the borrower would pay $6,000 in addition to the principal and interest payments.
One advantage for fix-and-flip investors is that borrowers looking to expedite the process often gain quick access to funding with hard money loans–often much quicker than traditional funding options. As hard money loans require lower qualifications, even borrowers without a proven track record may be able to do this. Additionally, repayments can be structured in different ways so the borrower may not have to make interest or points payments until after the property has sold.
Fix-and-flip loans are bridge loans used to facilitate the sale of a property being purchased with the intent to renovate (fix) and sell (flip). Consequently, bridge loans are often the financing choice for buyers seeking to fix-and-flip a property. Real estate bridge loans are short-term loans secured by real estate assets and meant to provide expedited access to capital for borrowers with a timely need or obligation. Note that these two types of bridge loans are not mutually exclusive, so a hard money bridge loan is also possible.
Outside of the renovation and construction costs themselves, flipping a property can hold hidden costs. While each property and project is different, there are inconsistencies in the types of costs investors are likely to encounter. As a general rule, expect to cover the following expenses when taking on a fix-and-flip:
Understanding these costs and having an accurate estimate in mind will be beneficial when applying for a fix-and-flip loan. Asking for an inaccurate amount could slow down the entire renovation process or lead to unnecessary debts, so be sure to crunch the numbers before requesting your loan.
To offer approval for fix-and-flip financing, lenders want reassurance that borrowers are able to repay the loan and that they have some stake in the investment. To increase your chances of being approved, it is a good idea to prepare a business plan detailing the estimated cost of renovations and/or construction. To strengthen your application, this plan will be accompanied by a solid credit score and a history of consistent income.
It is also beneficial to consider how much of a fix-and-flip loan the lender is willing to finance. For example, a lender may offer up to 65-75% of the property’s After Repaired Value (ARV). This means that the borrower will have to pay 25-35% of the property’s estimated resale value upfront to gain approval.
Have additional questions or want to learn more about your investment opportunities? Reach out to us at [email protected].
1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.
2 Represents a net estimated, unrealized annualized internal rate of return (IRR) of your portfolio and is based by reference to the effective distribution dates and amounts to and from the investments, as well as any outstanding principal and accrued and unpaid interest as of the current date, after deduction of management fees and all other expenses charged to the investments.[read more]
3 "Annual interest" represents an annual target rate of interest and "term" represents the estimated term of the investment. Such target returns and estimated term are projections of the returns or term and may ultimately not be achieved. Actual returns and term may be materially different from such projections. These targeted returns and estimated term are based on the underlying agreement between the SPV and borrower or originator, as applicable.
4 Reflects the initial quarterly distribution declared by the board of directors on February 6, 2020, which will be payable to stockholders of record as of June 10, 2020, and the initial offering price of $10 per share.
5 The Fund will cease investing and seek to liquidate the Fund's remaining portfolio no later than 48 months after the Fund's initial closing. It may take up to twelve months thereafter to fully monetize any remaining illiquid investments in the Fund's portfolio.
6 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.
7 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including January 8th, 2021, after deduction of management fees and all other expenses charged to investments.
8 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Prism Fund before investing. The prospectus for the Yieldstreet Prism Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetprismfund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.
No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.
Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor.
Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.
Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.
Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.
Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.
Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and willing and able to accept the high risks associated with private investments.
Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.
Banking services are provided by Evolve Bank & Trust, Member FDIC.
Investment advisory services are provided by YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission.
Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.