How Does a Fix and Flip Loan Work?

How does a fix and flip loan work? Well, it somewhat depends on the type of transaction — residential or commercial. However, whether it’s a residential or commercial deal, generally, fix and flip loans work mostly the same. If you’re new to fix and flip loans, you probably have a lot of questions. That’s okay because it’s a bit mysterious when you’re unfamiliar. Read on to learn more about how fix and flip loans work and what you should know.

How does a fix and flip loan work? Basically, regardless if it’s for a residential or a commercial property, these debt instruments function in much the same way. That is to say, that fix and flip loans are short term financing products, usually between 12 and 18 months (though some are much shorter, like 6 months, while some are a bit longer).

Fix and flip loans can come from a group of private investors who pool their money together, from a specialty lender, or even from a traditional bank. Of course, each has its pros and cons. The first type is also known as hard money loans and usually are for a term of 12 months, with competitive interest rates. These are also among the most common because they typically forgo red tape and bureaucracy.

Some fix and flip loan products will require collateral, as well as a personal guarantee. Others might or might not require one or both, as well as equity in the property already owned — generally about 30 to 40 percent.