Are Fix and Flip Loans Commercial? (Real Estate Guide)

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Are you wondering if fix and flip loans are commercial or not? The answer is yes. Fix-and-flip loans are commercial. Real estate investors mostly use them for renovation, sale, and purchase properties to make a profit. Commercial fix-and-flip loans are not used for residential or personal purposes.

Fix-and-flip loans allow real estate investors to purchase, renovate, and sell a property quickly. They are short-term loans. With fix and flip loans, you can easily access funds to cover the price of repairing and improving any real estate investment before selling it to make some profit.

The fix and flip loan is only available for commercial properties like shops, offices, industrial space, and warehouses. Let\’s discuss this further.

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What is a Fix and Flip Loan?

A fix and flip loan is a short-term loan with which you can access funds to fix and flip commercial properties. It helps real estate investors purchase and renovate a property (Fix) and then sell it for profit (Flip). Moreover, it is a loan with a higher interest rate than a traditional mortgage. The interest rate varies from 8% to 12%, depending on the criteria.

Although fix and flip loans provide a good way to make a lucrative source of income, they are also risky. The chances of risks are higher because the projects involved have high renovation costs and a complicated sales process.

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Fix and Flip Loans Vs. Conventional Loans

It is, however, easy to confuse a fix and flip loan with a conventional loan, but they are not the same. This is how, for some, real estate investors structure funds for their projects. These are meant for people who want to buy a property for a long time. In addition, conventional loans will have a lot more rules and policies.

On the other hand, fix and flip loans have no stringent rules. This is because individual or private lenders fund most such loans.

Types of Commercial Fix and Flip Loans

To succeed in your fix and flip project, you need a well-developed plan and a good lender. There are different types of fix and flip loans.

Hard Money Loans

Hard money loans are when you borrow from an individual investor or company rather than a traditional financial institution. These have short repayment schedules and very high interest rates. But you do not need a fabulous credit score to get it.

HELOCs

In a home equity line of credit (HELOC), you can secure a loan by involving your equity in a property as collateral. It has a fixed interest rate and repayment schedule. Moreover, it functions like a credit card and gives you access to a revolving LOC that you can use whenever required. HELOCs can provide you with a fix and flip multiple times based on the credit limit. Furthermore, HELOC is less expensive than personal loans or hard money loans.

Personal Loans

Personal loans can provide unsecured funds. These are typically offered through a traditional financial office or an online lender. The loan requires some sort of property appraisal, like a home mortgage. They have rates between 4%–36% and a longer closing process.

Loan From Seller

You also have seller financing, another commercial fix-and-flip loan type. In this kind, the individual who used to own the property receives as the lender and funds the purchase. You do not need to work with a traditional lender to get the loan. This type of finance is great for flippers just starting, and it ideally suits you when you need both the sale and renovation to be quick.

Business LOC

A business line of credit allows you to access funds up to a certain credit limit. It is a more convenient option for fixing and flipping projects because you don\’t have to reapply for a loan if you need extra funds. Moreover, interest implies the outstanding balance and not the whole credit limit.

Also Read: What Is the Gator Method

Pros and Cons of Fix and Flip Loans

Here are some pros.

  • Offers faster funding
  • Allows access to extra funds without applying for a separate loan.
  • Eligibility criteria are flexible.

Here are some cons.

  • Previous experience in doing flips is crucial.
  • Requires a down payment.

Best Commercial Fix and Flip Loan Providers

It is a daunting task to find the perfect fix and flip loan provider for your commercial project. We have done the homework for you. Here are the five best commercial fix and flip loan providers.

  1. BlueVine
  2. OnDeck
  3. New Silver
  4. Kapitus
  5. Funding Circle

Final Words

Fix and flip loans are used for commercial purposes by real estate investors to fix and flip a property with profit. You can get this loan for a retail shop, commercial offices, buildings, and industrial facilities. If you want fast funding for your next commercial project, a fix-and-flip loan is the right choice.