1. First-Time Flippers
How to Get a Fix and Flip Loan for First-Time Flippers
If you’re a first-time flipper, getting a fix and flip loan can be more difficult than if you’re a seasoned professional with outstanding credit and a track record of successful flips. It’s not anything personal — banks are just in the business of balancing risk and reward. If you can’t demonstrate on paper that you’re likely to be able to pay back a loan, no traditional bank will finance you. This is particularly true when it comes to house flipping, as banks prefer to make long-term loans, and a house flip — at least a successful one — is a short-term endeavor. However, there are alternatives out there, such as Seek Business Capital, which actually specializes in helping startups and new business owners get funding and can work with you to get you the financing you need.
How Does It Work?
What Are the Rates?
Am I Eligible?
How Much Can I Get?
What Documents Do I Need?
What Are the Terms?
Applying for a fix and flip loan is essentially the same as any other type of loan. Your job as a borrower is to put your best financial foot forward, showing you have the capability to pay back any money that you borrow. Your lender will evaluate your financials and other factors to determine if extending a loan to you is an acceptable risk.
Fix and flip loans are a bit different, however, due to their short duration and high risk profile. In spite of what popular TV shows suggest, flipping a house isn’t as easy as just pouring money into easy renovations and getting a quick return. Banks understand this and tend to shy away from fix and flip loans, unless a borrower is in an extremely strong financial position.
The good news is that there are options like Seek Business Capital, which actually specializes in funding procurement for borrowers that might not otherwise qualify for traditional bank loans. For a first-timer, trying to get funding from an alternative funding source like Seek Business Capital is generally more fruitful than going to a large, international bank.
One of the additional benefits of using getting funding for a fix and flip from a company like Seek Business Capital is that you can apply online and get a funding estimate in a matter of hours. With traditional bank loans, the process is usually accomplished in-person and can take weeks.
In finance, everything comes down to risk and reward. Without a proven track record to show, lenders will have to assume that you are a higher risk. Thus, your rates could be on the higher end of the scale. But ultimately, the better your credit score, the better rate you might qualify for.
If you’re a first-time flipper, you might not have the financial history that typically makes someone eligible for a bank loan. In this case, your first order of business should be to draft a business plan. Your business plan will not only serve to guide you throughout the process of your flip, but it will demonstrate to potential lenders that you have a path to profitability already planned out. Without some hard numbers in black and white that show how your flip can make money, it can be hard to get a loan from any source, including alternative lending sources.
Once you’ve nailed down your winning strategy, get your finances and credit in order. Without a track record of successfully flipping houses, your personal credit score and history will come into play. Keep your outstanding debt levels low, make all of your payments on time, and show that you aren’t financially overextended.
If you’re working with Seek Business Capital, for example, you’re more likely to find a funding advisor who understands the needs and difficulties of a first-time home flipper, which can improve your chances of getting approved.
In one sense, the sky's the limit when it comes to loan funding amounts. If you work with Seek Business Capital, you could request a funding amount as high as $500,000 if you’re a qualified borrower. However, it’s typically easier to get approved for smaller funding amounts like $100,000 if you apply for a first-time fix and flip loan.
At the end of the day, you’ll be approved for an amount that you can realistically pay back. The amount you get approved for will ultimately depend on a number of different factors including income, personal credit and more.
With first-time fix and flip loans, you’ll need to show evidence of your creditworthiness, as well as the particulars of your flip, as you won’t have much by way of experience or business records to provide to potential lenders. You should expect to provide some or all of the following documents depending on the type of loan you apply for:
- Financial specifics of the house for renovation (e.g., cost, down payment, etc.)
- Pay stubs or other documentation of income
- Credit card, loan, and other debt documentation
- Access to your credit report
- Information on past industry experience, in some cases
- A house flipping business plan, in some cases
- Previous tax returns, in some cases
- Bank statements, in some cases
As a first-time flipper, you’re not going to be able to demonstrate any track record in the industry, which will limit your borrowing options significantly. This is why alternative borrowing options such as Seek Business Capital exist, to finance startup business and first-time entrepreneurs who have specific needs and fewer available financing options.
Terms on a fix and flip loan are traditionally quite short. In fact, the whole profit model of the fix and flip industry relies on a rapid turnaround between financing a house and selling it. In the loan industry, longer-term loans carry higher risk, so it’s in your best interest to find a short-term loan.
Particularly for a house flip loan, it’s also important to find a loan with no prepayment penalty. This way if you sell your flip faster than you anticipate, you can immediately pay off your loan with no additional interest charges, ultimately saving you money and increasing your margin.
Working with Seek Business Capital, which specializes in helping startups and new entrepreneurs get funding, can help you find a customized financing option that works best for your particular situation.