Pros and Cons of Fix and Flip Loans

Fix and flips are a common way for real estate investors to make money by purchasing a property and renovating it in order to sell it for a higher price. Costs associated with fix and flips can be costly, which is why many investors seek out fix and flip loans, often referred to as short-term bridge loans or rehab loans.

Fix and flip loans are used by investors to cover costs of renovation expenses. These loans are generally shorter term loans, ranging from 12 to 18 months. Before approving a loan, lenders will look at how much the property was purchased for and the after repair value (ARV).

There are a number of advantages of fix and flip loans that make them very attractive to real estate investors. The potential to see fast and big returns does, however, come with some possible pitfalls. Doing your research and ensuring you have a comprehensive understanding will equip you to take the right steps to help alleviate any issues that could be related to your fix and flip. In your research be sure to seek out and develop relationships with experienced lenders, who will surely have a constructive impact on the process overall.

Let's take a quick look at some of the pros and cons you can expect with fix and flip loans.

Pros

• Quick financing

• Flexible terms

• Property serves as collateral, protecting your personal assets

• No prepayment penalties

• Interest only payments

Cons

• High interest rates

• No guarantee your investment property will sell

• Unpredictable costs and time

In most cases, reward outweighs the risk with fix and flip loans. If you’re having difficulty getting your project funded, fix and flip loans are a good option.