Rehab Flip

(Bridge Loans)

• 90% of the purchase price of the property
• 100% of the cost of rehab
• 6 Month - 18 Month Terms
  
  

How Financing an Investment Property Gives You Leverage in the Real Estate Market

Real estate investors use leverage in a variety of ways.

One common approach is to take out a traditional or hard money loan to purchase a property. You put down a portion of the purchase price as a down payment and then borrow the remaining amount from a lender. The financing is secured by the property, meaning that if you’re unable to make payments, the lender can seize the property to recoup their funds.

In reality, financing an investment property with high leverage can

give you a significant benefit in the real estate market and here's how:

Maximize Cash Flow

Financing an investment property with high leverage allows you to maximize your cash flow by putting less money down upfront. For example, some hard money or non-qm lenders offer leverage up to 90%, meaning you only need to put 10% down. This means you can invest in more properties with the same amount of money. For example, if you have $100,000 to invest, you can buy one property outright or finance two properties and use the rest of your cash for other investments or rehabs.

Increase Returns

Financing an investment property can increase your overall return on investment (ROI). Let's say you buy a property for $200,000 and finance $150,000 of it. If the property appreciates by 5% over the next year, it's now worth $210,000. Your ROI on the property is 10%, even though you only invested $50,000 of your own money.

Tax Benefits

If you’re financing a rental property, there are tax benefits as well. You can deduct mortgage interest, property taxes, and other expenses related to the property from your taxable income. This can significantly reduce your tax liability and increase your cash flow.

Diversification

Finally, financing an investment property allows you to diversify your investment portfolio. Real estate is a great way to diversify because it doesn't necessarily move in the same direction as the stock market.

Financing options for Rehab Flip investment properties, let’s explore some of the most popular financing options for Flips:

Hard Money Loans

Hard Money Loans are a popular financing option for fix and flip or rental property investors. These loans are typically offered by private lenders and secured by the property. Hard money loans typically have higher interest rates and fees than conventional mortgages, but they can be a good option if you need to close on a property quickly or if you have poor credit.

DSCR Rental Loans

DSCR (Debt Service Coverage Ratio) rental loans are a type of financing available to real estate investors who own income-producing properties, like single-family rental homes, condos or multifamily buildings. These loans are specifically designed to provide financing for real estate investors who are seeking to purchase or refinance a rental property and want to ensure they have enough cash flow to cover their monthly mortgage payments. DSCR loans do not require income verification for funding.

* Consider the 70 percent rule of flipping property when determining whether you can make a profit. The 70 percent rule is just a general guideline, but it can help  real estate flippers decide whether the property is a good risk.

 

Here’s how to use the 70% rule:

 Estimate the home’s after-repair value (ARV): This is the amount the house will likely sell for after it’s fixed up. A real estate agent can help you estimate this value. For example, let’s say the house will likely sell for $250,000 after it’s repaired. Its ARV is $250,000.

 Now, multiply the ARV by .70. In our example, $175,000 is 70 percent of the home’s estimated $250,000 after-repair value.

 Subtract estimated repair costs from ARV: The result is the maximum amount you should pay for the house. In our example, the ARV is $175,000. If we think it will take $35,000 to repair the home, we will subtract $35,000 from $175,000. This gives us $140,000, which is the most we would want to pay to purchase the house.

Like all rules, the 70 percent rule is just a parameter. In a hot market where houses are selling for full asking price within days of being listed, you could probably push the 70 percent rule up to 80 percent, or even slightly higher. The key is knowing the market and understanding the risks. It’s always better to err on the side of caution.