There are a variety of loans available for investors looking to purchase and rehabilitate properties, but the most popular among them are fix and flip loans and construction loans. However, there are definitely differences between the two - even though they may sound similar - and each are ideally suited to specific situations. In fact, one of the biggest differences is that hard money construction loans are typically issued for properties that have yet to be built, whereas fix and flip loans are issued for properties that are already in existence and need a bit of TLC.
In a traditional loan/mortgage situation, a construction loan can be used either to fund an entire new construction project or to make renovations to an existing property. In some cases, such as when a property is in need of drastic and critical repairs, a traditional mortgage lender may only allow a construction loan to be taken out on the property. However, in the case of hard money construction loans there’s a bit more flexibility in the type of project that may qualify for the loan. For those developers looking to fix and flip a property, a construction loan may actually not be the most ideal option. However, if they’re looking to begin a project from the ground up then a construction loan is definitely where they should begin the process.
At Walnut Street Finance we provide construction loans based on the estimated purchase price of the property (typically an undeveloped lot), and all development and construction costs. The loans are short-term loans, ranging from a few months to a couple of years depending on the scope of the building project, and are repaid when the project has been completed and sold or refinanced. To be clear, these types of loans from Walnut Street Finance are not meant for borrowers that are looking to undertake a large project on their primary residence - rather they’re specifically designed for borrowers that are building new construction with the intention of refinancing the property to generate rental income or selling the property to make a profit.
Fix and Flip Loan
Fix and Flip loans are, as their name suggests, inherently different from construction loans. While they do, of course, involve an aspect of construction, they’re specifically tailored to meet the needs of people who are renovating properties in which already exist and who have plans to sell the property shortly after the completion of the project. With a fix and flip loan borrowers will be able to bypass the lengthy application, approval, and disbursement periods that traditional loans carry, allowing them to close on a property quickly and begin their projects as soon as possible.
In either case, Walnut Street Finance takes great pride in working with our borrowers to ensure that the project you’re about to embark on is going to be a successful one. As experts not only in our field, but also in our local real estate markets, we do our due diligence to ensure that the projects being proposed are likely to succeed, that the funds being requested are sufficient, and that the timeline and scope of the project is reasonable. Our “boots on the ground” mentality means that throughout the project we may stop by the site to see how things are progressing and offer some insight or advice when applicable. If things seem to be going awry we have the experience and expertise to step in to ensure the project is ultimately completed and that all parties walk away with as favorable a result as possible.