How Do Fix and Flip Loans Work?
The process of obtaining and utilizing a fix and flip loan involves several key steps. Initially, the investor identifies a promising property with potential for improvement and profit. Once a target property is selected, the investor approaches a lender specializing in fix and flip financing.
The lender assesses the property's current condition and estimates its after-repair value (ARV) based on the proposed renovation plans. This assessment determines the loan amount, which typically covers a percentage of the purchase price and renovation costs, often up to 70-85% of the ARV.
Upon approval, the loan is disbursed, allowing the investor to purchase the property and commence renovations. Funds for renovations are usually released in stages, known as "draws," as specific project milestones are completed. This staged funding ensures that the renovation progresses as planned and mitigates the lender's risk.
Throughout the renovation phase, the investor is responsible for making interest-only payments on the loan. Once the renovations are complete, the property is listed for sale. The proceeds from the sale are then used to repay the loan principal and any remaining interest.
Lendai recently helped a U.K.-based investor flip a property in Orlando. They faced financing delays with traditional banks but were able to secure a fix and flip loan with Lendai in under 10 days. With a structured payment plan, they completed renovations in four months and sold the property at a 35% profit margin.