The real estate market is booming these days, and one result is a shortage in good housing stock. With limited stock available, especially of move-in ready homes, one solution investors are jumping on is improving existing properties and selling them for a profit. Competition is cutthroat, especially among real estate investors who have the ability to make cash offers. Fix-and-flip loans are one solution that can help you stay competitive and take advantage of the current real estate market.
Housing Stock Expansion Through Renovation
With sales prices going up and inventory going down, home renovations will be critical for expanding the housing stock. Although new home construction will also contribute to building inventory, it takes longer and costs more, especially with the current labor shortage and high price of materials. New construction also requires a larger variety of materials because you’re starting from scratch. When renovating, you might just need lumber, drywall, paint, and other finish materials, but a new home needs plumbing, electrical, and more.
Whether you do some of the work yourself or outsource it to qualified contractors, renovating a distressed property is often more cost-effective than building a new home. When done right, it also offers the potential to make a nice profit. Although it’s true that profit margins on renovations may not be as lucrative as new construction, with increasing labor and materials costs, they are definitely less risky.
Renovations also have some built-in risk mitigation that many other types of investments don’t have. If the market shifts during the renovation process, you can always hang on to the property as a rental to generate income until prices go back up.
Most people don’t have the cash on hand required to invest in renovations, so they have to borrow it. In many cases, a conventional mortgage is not an option, either because of the borrower’s finances or because of the condition of the property. Fix-and-flip loans are designed to cover the purchase price of the home and a portion of the renovation costs. They are typically short-term loans because the intention is to sell the home within a certain time frame. However, if you decide to keep the home as a rental or you need more time to renovate, you may be able to get a traditional mortgage with better rates and longer terms.
Fix-and-Flip Loans Through a Hard Money Lender
When you apply for a fix-and-flip loan with a hard money lender, approval depends on how much equity you have, the purchase price, the estimated renovation costs, and the predicted sale price. Unlike with a conventional lender, you can often get a hard money loan even if you have bad credit history or a non-traditional income that is not reflected in your tax returns.
Hard money lenders also offer advantages that conventional lenders cannot. The main benefit is that approval is fast, so you can make competitive offers. Loan closing also takes significantly less time—days instead of weeks or months—giving you a competitive edge if the seller receives multiple offers.
Fix-and-Flip Loans from Socotra Capital
Socotra Capital is a hard money lender that offers fix-and-flip loans to real estate investors with a broad range of experience levels. Whether you’re a seasoned investor or are just starting out, our team can help you get the financing you need to achieve your investment goals. We offer loans throughout the country, and our personalized services allow us to build long-term relationships with borrowers, so you know we’ll be here for your next project.
For additional information and helpful tips, read The Borrower's Guide: Fix-and-Flip Hard Money Loans.