The Difference Between Fix and Flip and Rehab Properties Loans
Current popular television shows have made flipping houses a popular avenue for those wishing to break into the sometimes-lucrative world of real estate investment. Although television personalities are shown having great success in both choosing homes, working with project managers, and have readily available funds, the reality for new investors can often be very different. Since the recession, loans have become more difficult to find for untried and untested entrepreneurs. Also, finding a contractor that will work with you, believes in being on time, and already has a reliable crew can be difficult. So how can you make sure your projects are a success? The first step is knowing the difference between a fix and flip and rehab property loan.
What Do the Terms Mean?
When trying to define the two terms and identify the differences, you may find it is very difficult. That is because the terms are often used interchangeably. That means that many lenders or financing institutions will often choose one or the other for marketing purposes, and once that occurs, the area often follows suit. For clarification purposes, and to point to minute differences as used by lenders, rehabs loans are mostly found in areas with historic homes, while a fix and flip home loan can often be found in areas that have newer homes that are quickly put back on the market after updating them.
Are the Loans Really Different?
Traditional mortgages are not an option for most home refurbishing clients because the appraised value of a “fixer upper” can often be less than the actual market value by tens of thousands of dollars and the loan length is more than what the client would need. The traditional loan does not allow for the extra money often needed to fix the house in order to flip it, either. The rehab lender bases the loan value on the purchase price of the property, the proposed improvements, and the resale property value. Although the interest rate for a rehab loan may be higher than that of the traditional type financing, the process can be much more fix and flip friendly when turnaround time is important because the loan can often be approved in as little as two weeks.
Whether you are trying to break into the fix and flip business or have been working on rehab homes for years, knowing the difference in the two types of loans can help you save money. When you need to turn a property around quickly, look for a rehab loan.