Fix and Flip Loan

Understanding Fix-and-Flip Loans

The Fix-and-Flip investment method has become one of the most attractive ways for real estate investors to make a quick profit from a property. Fixing and flipping properties have many upside and benefits, but there are also things to be cautious of, more so for first time Fix-and-Flippers. It is important to understand the process of fixing and flipping as well as fix and flip loans.

Where do I start?

When looking for a property to purchase for a Fix-and-Flip, finding a property in the right location is very important. In addition, the property must be a “smart” purchase, or what some refer to as, “buying right.” This means maximizing your profit, planning thoroughly, and accounting for everything to make this process the most successful. 

The “70% Rule” is a great calculation for the available spending cap for your investment property. Though the “70% Rule” is not actually a rule, it is a great measure to ensure you are not overpaying for the property and are including all costs for repairs, ultimately aiding to avoid slimming down your profit margins or losing money on an investment property. The “70% Rule” means that you should not pay any more than 70% of the property’s after repair value, minus the costs or repairs and renovations. 

Of course, paying less than 70% is more than ideal, and paying more than 70% does not mean you will not make profit, but it is the suggested number to not pass, as it gives wiggle room for costs all around. Like any investment, proper planning and research can only benefit you, the investor, in the long run. 

What about the taxes associated with Fix-and-Flips?

With fix-and-flips, you must pay taxes on the surplus of capital gains after the sale.

Here are 3 quick tips for fix-and-flip taxes:

  • Do all repairs and renovation within one calendar year – Having all contracted work completed within one calendar year helps make certain that a tax deduction can be factored in. Many aspects of the repairs are qualified for tax deductions, many of which can be completed rather quickly and are not major repair jobs. 
  • Maximizing Deductions – Going along with the first tip, tax deductions can be hidden in plain sight, when it comes to fix-and-flips. Much of the renovation and repair material can be tax deductible, but in addition, if operating this investment as a full-time investor (investing and selling multiple properties within a year), you are classified as a business and makes you eligible for many more tax deductions. 
  • Work with an expert – Investment real estate taxes can get rather complicated. Figuring out all the taxes and tax deductions can be a lot of work and very confusing if you do not have experience with it. Working with a live expert will allow you to make the most out of your personal investment situation. Like the rest of the investment process, it is always best to prepare; keep all related documents organized and ready to make your tax process as smooth as possible. 

What to avoid

Fix-and-Flips investments are time consuming and can require a lot of effort. Despite what you may hear on reality television and the real estate influencers, fix-and-flips is not always a very quick and extremely easy way to make a huge profit. Like any business, there is much to account for and a lot of work to be put in to make a true profit. 

With this being said, the number one thing to avoid is rushing into an investment, especially one that you have not thoroughly researched and planned out. Take your time when researching and looking into financing options, be sure to make the best-fitting choice for your goals. The next thing to avoid is underestimating. It is better to be safe than sorry, so always overestimate every timeline and expense. Have a plan for the worst-case scenario. 

LenderFi.co can cover up to 90% of the loan-to-cost (LTC) and up to 100% of the repair costs. 

How do I get a Fix and Flip Loan?

LenderFi.co is your one-stop-shop to help you with Fix and Flip loans!

Click to see if you qualify!

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Ryan Thaler

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We provides superior asset-backed investment solutions for individuals, institutional clients, family trusts and our own syndication/development partners.

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