Is Fix and Flip Financing the Same as Real Estate Financing?
Many alternative lenders provide a variety of financing options for modern businesses. In the world of real estate, there are many different funding possibilities, including loans, lines of credit, construction financing and even small business loans. These days, fix and flip financing is a popular tool for real estate companies. Is there a difference between this type of funding and real estate financing?
What Is Real Estate Financing?
The term real estate financing refers to a broad category of funding programs. It includes conventional mortgages, home equity lines of credit, loans for developers, bridge loans and many other types of financing. Some real estate companies prefer equity or mezzanine financing, while others choose alternative methods such as commercial mortgage-backed securities. Fix and flip financing is a small part of that larger pool of options.
You can think of real estate financing as the overall type of lending, similar to categories like “vehicle” or “restaurant.” In this comparison, fix and flip financing would be one type of vehicle, such as an SUV. It has benefits for specific types of real estate goals, but it’s not designed for every circumstance.
What Is Fix and Flip Financing Used For?
As the name suggests, this type of funding is mainly used for property resale. House flippers generally try to purchase real estate as economically as possible, improve it and sell it for a profit. Fix and flip funding focuses specifically on that type of process, making it easier for business owners to complete projects smoothly.
A key difference between traditional mortgages and loans for house flipping is the ability to cover the cost of improvements. Conventional real estate loans rarely cover this type of need. It’s too risky for banks. On the other hand, alternative lenders are happy to support house flippers, and they recognize a good opportunity when they see one.
What Are the Benefits of Loans for House Flipping?
An important advantage of loans for house flipping is flexibility. Conventional loans often require approval for each stage of the purchase or project, and the full amount of funding may not be available until late in the project. Fix and flip loans provide substantial capital for the purchase, remodeling needs, and other items from the very beginning. That way, it’s possible to finish on time and adhere to the project budget.
Another benefit is speed. These loans are approved and deposited quickly. Qualifying isn’t difficult, and closing generally only takes a few weeks.