Fix and flip loans are loans made to Realtors or Real Estate entrepreneurs who purchase single family homes below market value in need of repairs. They correct what is wrong and then sell the property, hopefully at a substantial profit, to an “end user” – usually someone who wants to make the house his or her primary residence. Some people also keep these houses as rentals for appreciation and cash flow.

Since 1998 I have consistently made more than 50 of these kinds of loans annually, usually to everyone’s satisfaction.

How it works
In the current real estate climate almost all of my borrowers find and place under contract, a bank owned foreclosure. As everyone knows, the Denver area market is flooded with these homes, which can be both good and bad.

It is good in that there are a lot of choices. It is bad in that, because of intense competition for these homes, prices are being bid up making it difficult to buy so you have enough room to still be able to make a profit on a resale.

What appears at first blush to be a killer deal can in fact eat your lunch when you try to sell that same property all fixed up into the retail market.

Most bank owned properties make no sense as fix and flip prospects and it will take offer after offer before you can get one that will work for you..

The key to success today is to buy sub-wholesale and sell wholesale.

An Example
You find a house that you figure will sell quickly, after it has been fixed up, for $175,000.00. (The vast majority of my customers deal in low end houses, which is where most of the foreclosures are and is where it is most likely you can make a profit) You and I figure that it will cost you $20,000.00 to make it really nice.

From long experience I know that you cannot afford to pay more than 75.00% of $175,000.00 or $131,250.00 less that $20,000.00 in repair estimate or $111,250.00.

If you find such a deal I will finance the transaction as follows:

I will lend you $111,250 plus my 5.00% loan fee of $5,562.00 for a total of $116,812.00 (repeat customers pay only 4.00%). Your loan will be written for 6 months and will be payable in monthly interest only payments of $1,168.12. That works out to 12.00%. There is no pre-payment penalty, you may pay off your loan at any time and you will only pay interest for the time you have kept the money.

There are no fees associated with your loan. I do my own appraisals. I prepare my own loan documents. The only other fees you may encounter are those imposed by your title company over which I have no control.

Fix Up Money
Because I make no money down loans, I expect first time borrowers to have their own fix up money. Many of my customers have credit established with Home Depot and other such stores. Many of my customers also use their credit cards or their home equity lines of credit to get started.

Credit and other requirements
If you are a new customer, I will ask you to bring me your in file credit report. I do not have a minimum credit score but I just want to see who you are. If you have had credit problems that does not automatically disqualify you. I just want to hear your story. Several of my best customers have had credit issues over the past few years. I understand that small business people may not always look pristine. I do however hope that you have had some experience! You must either be a Realtor, Contractor, or in a line of work that fits. Starting out cold in today’s depressed market could cause both of us problems.

Getting Started
If, after we have talked, we still like each other, I will provide you with a “lender letter” ,which will state that you have been unconditionally approved to purchase any home in the Greater Denver Area up to a certain amount subject only to a final inspection of the house purchased. Usually this will satisfy the agent for the lender and will avoid you having to ask for a fresh letter every time you make an offer.