Fix and flip investing can be highly profitable, but success depends on securing the right financing. This guide covers everything Atlanta investors need to know about funding their renovation projects.
Understanding Fix and Flip Loans
Fix and flip loans, also known as hard money loans or bridge loans, are short-term financing designed specifically for purchasing and renovating properties for resale.
How They Differ from Traditional Mortgages
| Feature | Fix and Flip Loan | Traditional Mortgage | |---------|------------------|---------------------| | Term | 6-18 months | 15-30 years | | Approval focus | Property value & deal | Borrower income | | Speed to close | 7-14 days | 30-45 days | | Interest rates | 9-15% | 6-8% | | Down payment | 10-20% | 3-20% |
Types of Fix and Flip Financing
Hard Money Loans
The most common choice for flippers. Key features:
- Based primarily on property value (ARV)
- Quick approval and funding
- Shorter terms (typically 12 months)
- Higher interest rates
Private Money Loans
Loans from individuals or small investment groups:
- More flexible terms
- Relationship-based
- Potentially better rates for experienced flippers
Bridge Loans
Short-term loans to "bridge" between purchase and sale:
- Can be from banks or private lenders
- Usually require stronger credit
- May offer better rates than hard money
Lines of Credit
For experienced investors with established track records:
- Draw funds as needed
- Pay interest only on what you use
- Requires strong financials
Key Terms to Know
After Repair Value (ARV)
The estimated value of the property after renovations are complete. Lenders typically loan a percentage of ARV.
Example: If ARV is $300,000 and the lender offers 70% ARV, maximum loan is $210,000.
Loan-to-Value (LTV)
The loan amount compared to the current (as-is) property value.
Loan-to-Cost (LTC)
The loan amount compared to total project cost (purchase + rehab).
Points
Upfront fees charged as a percentage of the loan. One point = 1% of loan amount.
Calculating Your Deal
Before seeking financing, you need to know your numbers:
The 70% Rule
A common guideline for flippers:
Maximum Purchase Price = (ARV × 70%) - Repair Costs
Example:
- ARV: $350,000
- Estimated repairs: $50,000
- Max purchase: ($350,000 × 0.70) - $50,000 = $195,000
Full Project Analysis
For a complete picture, calculate:
- Purchase price: What you're paying for the property
- Closing costs (purchase): Typically 2-3%
- Renovation costs: Be thorough and add 10-20% contingency
- Holding costs: Interest, taxes, insurance, utilities
- Selling costs: Agent commissions, closing costs (8-10%)
- Profit target: What you need to make the deal worthwhile
What Lenders Look For
The Property
- Good location with strong resale potential
- Clear title
- ARV supported by comparable sales
- Reasonable scope of work
The Deal
- Purchase price at proper discount
- Realistic renovation budget
- Strong profit margin
- Exit strategy that makes sense
The Borrower
- Experience (or a solid team)
- Skin in the game (down payment)
- Ability to handle the project
- Credit score (requirements vary)
Getting Approved: Step by Step
1. Find Your Deal
Before approaching lenders, have a specific property with:
- Purchase contract or clear opportunity
- Scope of work
- Renovation budget
- Comparable sales showing ARV
2. Prepare Your Package
Lenders will want:
- Property information and photos
- Purchase contract
- Detailed scope of work
- Contractor estimates
- Comparable sales
- Your experience/resume
- Proof of funds for down payment
3. Submit Applications
Consider applying to multiple lenders to compare:
- Interest rates
- Points and fees
- Draw schedules
- Terms and requirements
4. Property Evaluation
The lender will:
- Review comparable sales
- Possibly send an appraiser
- Evaluate your renovation budget
- Assess overall deal viability
5. Closing
Once approved:
- Review all loan documents carefully
- Ensure draw schedule meets your needs
- Understand all fees and requirements
- Close and fund
Managing Your Project
Draw Schedule
Most fix and flip loans release renovation funds in draws:
- Initial draw at closing (sometimes)
- Progress draws as work completes
- Inspections before each draw
Tip: Have enough cash reserves to float costs between draws.
Timeline Management
Time is money with fix and flip loans:
- Create a detailed renovation schedule
- Account for permit timelines
- Have backup contractors ready
- Build in buffer time
Budget Control
Protect your profit margin:
- Get multiple bids for major work
- Track expenses carefully
- Make decisions quickly
- Avoid scope creep
Atlanta Market Considerations
Hot Flip Areas
Some Atlanta areas showing strong flip potential:
- West End/Adair Park: Historic homes, strong appreciation
- East Lake: Established area, consistent demand
- Kirkwood: Strong buyer pool, premium prices
- Sylvan Hills/Capitol View: Value-add opportunities
Local Factors
- Permit timeline varies by jurisdiction
- Historic districts have additional requirements
- Competition for deals is strong
- Quality contractors are in demand
Common Mistakes to Avoid
- Underestimating repairs: Always add contingency
- Overestimating ARV: Be conservative with projections
- Ignoring holding costs: They add up quickly
- Skipping inspections: Know what you're buying
- Over-improving: Match renovations to the neighborhood
- Poor contractor management: Verify work quality
Building Your Fix and Flip Business
Start Smart
- Begin with simpler projects
- Build relationships with reliable contractors
- Learn your target neighborhoods deeply
- Track every deal's performance
Scale Strategically
- Reinvest profits into more deals
- Build credit with your lenders
- Develop systems and processes
- Consider partners for larger projects
Ready to fund your next flip? Savant Homes offers competitive fix and flip financing for Atlanta investors. Contact us to discuss your project.