Fix-and-Flip Strategies With Hard Money Loans
Fix-and-flip projects are a great way for investors to build their portfolios and earn quick profits through real estate. And luckily, there are several different fix-and-flip strategies for investors to explore. Today, we’ll go over the basis of a fix-and-flip project, different strategies, and how to flip a house using a hard money loan. So, read along to learn more!
Contents of This Article:
- What Does Fix-and-Flip Mean?
- Different Fix-and-Flip Strategies for Investors
- Steps to Flip a House Using Hard Money
- How Do Hard Money Loans Help Fund a Project?
- Work With a Local Maryland Lender Today
What Does Fix-and-Flip Mean?
Fix-and-flip refers to a real estate investment strategy where an investor purchases a distressed or run-down property with the intention of making necessary renovations or improvements and then selling it at a higher price to make a profit.
This process typically involves buying a property below market value and increasing the property’s value through repairs, upgrades, and improvements. Then, once renovations are complete, investors list the property for sale, typically selling it at a higher price than the total investment.
This strategy can be lucrative for investors with a good understanding of the local real estate market, construction and renovation skills, and a solid financial plan. However, it also comes with some risks, like unexpected renovation costs, market fluctuations, and potential difficulties in selling the property.
That said, there are several different ways to execute a fix-and-flip project. Next, we’ll go over some common strategies for investors to look into and one way to use Maryland real estate loans.
Different Fix-and-Flip Strategies for Investors
Fix-and-flip strategies involve purchasing a distressed property, making necessary renovations or improvements, and then selling it for a profit. That said, there are several different fix-and-flip strategies that investors can explore. Here are some of the most common ones.
- Traditional Fix-and-Flip
- Buy, Rehab, Rent, Refinance, Repeat (BRRRR)
In a traditional fix-and-flip strategy, an investor purchases a distressed property with the intention of making necessary renovations and improvements. The goal, like any fix-and-flip strategy, is to increase the property’s value and market appeal.
Once the renovations are complete, the investor lists the property for sale on the market, aiming to attract potential buyers. The profit comes from selling the property at a higher price than the total investment, which includes the purchase price and renovation costs. This strategy is great for investors who have a good understanding of the local market and renovation process.
The fix-and-hold strategy involves purchasing a distressed property, making necessary improvements, and then holding onto the property as a rental. The goal is to generate rental income and potentially benefit from property appreciation over time.
Unlike a traditional fix-and-flip project, the investor doesn’t immediately sell the property after renovations. This strategy is great for investors seeking long-term cash flow and the potential for property value appreciation in the future.
Buy, Rehab, Rent, Refinance, Repeat (BRRRR)
BRRRR is an acronym that stands for Buy, Rehab, Rent, Refinance, Repeat. This strategy involves a series of steps.
- Buy- Acquire a distressed property below market value.
- Rehab- Renovate and improve the property.
- Rent- Rent out the property to earn passive income.
- Refinance- Once the property is stabilized and the value has increased, refinance the property to pull out the initial investment.
- Repeat- Use the refinance proceeds to fund the next project.
This strategy allows investors to recycle their capital to acquire and improve multiple properties over time. It’s a popular method for building a rental property portfolio while maximizing returns.
Steps to Flip a House Using Hard Money
Fix-and-flip projects require several steps to end with a profit. That said, there are several ways to fund real estate projects, including with hard money. Next, we’ll go over some of the common steps for investors to follow using hard money loans.
- Choose Your Strategy
- Find a Property
- Evaluate the Property
- Apply for a Hard Money Loan
- Rehab the Property
- Re-Evaluate the Property
- List the Property For Sale
Choose Your Strategy
Determine the fix-and-flip strategy you want to pursue, whether you decide on a traditional fix-and-flip, fix-and-hold, or BRRRR. Choosing a strategy first will help guide your approach to finding and renovating the right property.
Find a Property
Locate a distressed or undervalued property that fits your investment criteria. This step may involve researching listings, attending real estate auctions, or networking with other real estate professionals.
Evaluate the Property
Conduct a thorough evaluation of the property to assess its condition and potential for improvement. This is also known as finding the after-repair value. To do this, you’ll want to consider factors like location, necessary repairs, market demand, and potential resale value.
Apply for a Hard Money Loan
Contact a reputable hard money lender and submit an application for a loan. You’ll want to give them as much information as possible about the property, your investment plan, and any other required documentation.
Rehab the Property
Use the hard money loan to purchase and renovate the property. Make necessary repairs and improvements according to your investment strategy. Additionally, ensure that the renovations align with your budget and timeline.
Re-Evaluate the Property
After completing the renovations, evaluate the value after repairs are done to ensure it meets your initial investment goals. Verify that the improvements have added value and addressed any necessary repairs.
List the Property For Sale
Once the property is in its improved state, list it for sale on the real estate market. Use effective marketing strategies to attract potential buyers and showcase the property’s features.
How Do Hard Money Loans Help Fund a Project?
Hard money loans are a type of short-term, asset-based financing option often used by real estate investors, including those involved in fix-and-flip projects. They can be helpful in funding real estate ventures for several reasons, including the following.
- Quick Approval and Funding- Hard money lenders have a streamlined approval process compared to traditional banks. As such, investors can secure funds relatively quickly, which is crucial for time-sensitive projects.
- Asset-Based Lending- Hard money loans are secured by the value of the property being purchased and renovated. So, the focus is primarily on the property rather than the borrower’s creditworthiness or financial history.
- Flexibility- Hard money lenders are often more flexible than traditional lenders when it comes to borrower qualifications. This can be especially helpful for investors who may not meet the strict criteria of traditional financing options.
- No Need for Extensive Documentation- Traditional loans usually require a significant amount of paperwork, including detailed financial statements, credit reports, and business plans. On the other hand, hard money loans typically require less documentation, making them more accessible for some borrowers.
- Short-Term Nature- Hard money loans are usually short-term loans, with terms ranging from a few months to a few years. This aligns well with the timeline of fix-and-flip projects, as investors typically intend to sell the property quickly after renovations are done.
Work With a Local Maryland Lender Today
Exploring different fix-and-flip strategies is a great way for investors to start or expand their real estate portfolios or gain experience in real estate investing. If you’re thinking of diving into real estate investing and want to skip the long process of traditional financing, you may look into hard money lending instead. Hard money loans are great for those looking to quickly secure a property and can repay the loan soon after the property sells.
If you’re in Maryland and you need a hard money loan, look no further than Maryland Hard Money Lenders. Our team of qualified professionals can help you evaluate your next real estate project and get you funded quickly. Contact MHML today to learn more about our lending process, and fill out a loan application today!