26th Oct 2024

Fix to Rent or Fix and Flip Loans?

Two common loans in real estate are fix to rent loans and fix and flip loans or flip loans. They appear to be similar but have different investment goals to fulfill.

 

We compare the two.

1. Flip Loans

Flip loans are short-term financing options for buying and renovating properties where the goal is to sell them quickly. The loan usually covers the property's purchase price and the cost of repairs.

They’re designed specifically for fast repayment (usually within a year or two) once the property is sold. Fix and flip investors rely on quick sales to repay the loan and make a profit.

2. Fix to Rent Loans

Fix to rent loans are different in that they help investors who plan to keep the property for rental purposes.

Under this strategy, they purchase a distressed property, make improvements, and then refinance it using a DSCR loan. The investor can in this way, hold onto the property for the long term.

The rental income means there’s ongoing cash flow, and the refinanced loan provides more favorable terms for a long-term hold.

Like flip loans, the renovation shoots up the property's value – the goal, however, is to create a rental asset rather than a quick sale.

This table summarizes the differences:

Feature	Flip Loans	Fix to Rent Loans
Purpose	Purchase, renovate, sell property – for profit	Purchase, renovate, hold property – for rental income
Loan Term	Typically 6 months to 1 year (up to 2 years)	Refinanced with a long-term loan (DSCR loan)
Loan Type	Short-term, often from private lenders	Starts as short-term but refinances into a long-term loan
Primary Goal	Quick resale for profit	Long-term rental income and cash flow
Renovation Focus	Renovation aimed at increasing resale value	Renovation aimed at improving rental potential
Repayment Source	Proceeds from property sale	Rental income after refinancing
Investment Strategy	Focus on quick turnaround and sale	Focus on holding and generating steady cash flow

Ridge Street Capital

Ridge Street Capital specializes in providing competitive loans for real estate investors. Planning to sell or rent a property? Ridge Street offers financing solutions to help you acquire, renovate, and manage real estate projects across the U.S.

Find more information at https://www.ridgestreetcap.com/.