Flipping and Financing - Mortgage

[Cameron Daste]

Hi All - 

New to the site. Happy to be here! 

Have a question regarding the financing of a flip. I'm in the Pacific Northwest where home prices are quite high. From what I've learned so far, flips are generally considered one of the better investments in this type of market (please feel free to correct me if my understanding is wrong!). I'm trying to understand how the financing works; Let's say I get a mortgage on the property, but only own for 6 months, as I've purchased, renovated, and made the sale to the next owner. What happens to the remainder of the mortgage in this scenario? Does the new sale cover my prior mortgage?

Thanks in advance and looking forward to engaging more on this site!

-Cameron

[Alex Hunt]

Hey Cameron, yes this is a fix n flip loan. There’s many names for it, hard money, private money, reno loan, bridge loan. 

You can include the renovation budget in the loan as well. Typically a 12-18 month interest only, where you only pay interest on what’s been drawn so far. Say the reno budget is $50k and you’ve only drawn $30k so far. You only pay interest on the $30k drawn. 
This allows you to maximum profit on the sale and lower the payment of the loan, just make sure the ARV or sale price is good.