Financing for Fix and Flip and Financing for Fix and Rent

[Charles Stewart II]

Hi,

1. What are the advantages and disadvantages with using the 203k or Fannie Mae Renovation Loan vs Hard Money Loans for fix and flip properties?

2. What are the advantages and disadvantages using Hard Money Loans for fix and flip properties?

I have access to loan programs for fix and flip investors and fix and rent investors, which are through a lender.  They are the 203k loans and the Fannie Mae Renovation Loan.

I also have access to Hard Money lenders for fix and flip investors and fix and rent investors.

I am trying to compare and see which options are best.

Thank you in advance!

[Nghi Le]

If both you and the property can qualify for the bank loan, that's usually going to be the better option; it's simply cheaper and less risky. But a lot of investors don't qualify for bank loans, and sometimes the property's in bad enough shape that it doesn't either. Banks are just more headaches, so there's a hassle factor as well.

Mainly it's about closing speed.  Banks take 30-60 days to close, especially with having to qualify the rehab and the contractor.  Hard money lenders are 1-3 weeks.  If your competition is offering the seller a 2-week close and you're asking for 1-2 months, there's a good chance you'll lose the deal.

Sometimes you can get in with a lower down payment with hard money lenders (i.e. 5-10%), so depends on your liquidity too.  But HomeStyle Renovation is pretty low (15% down I believe), although they may have more reserve requirements.

By the way, FHA 203k loans are used for primary residences. So unless you plan to live in it, that's not an option.