There are many avenues to choose from when investing in commercial real estate. If you don’t want to stick with a property for the long term, you can try a fix and flip, where you purchase a piece of property to renovate and sell it. Financing is often an integral piece of the process, so keep reading to see how these loans work.

The Process

The first thing you should know about these types of loans is that they’re a subset of bridge loans. Not all bridge loans will work for this type of application because you’ll need a loan that includes the purchase of property and the subsequent renovation. The loan you will receive will typically be the value of the property after the repair and the total anticipated cost of the renovation project. Interest rates, terms, and fees can change drastically depending on who or where your lender is, but typically, terms run no longer than two years.

The stage following the securing of the loan is the rehab stage. This is where you begin doing all the necessary renovations, which can include demolition, new construction, or variable sprucing. The money from your loan is used to pay contractors and purchase any building materials or equipment. In many cases, whatever money you don’t use for the rehab stage can be reimbursed.

The Application

To apply for this type of loan, you have to submit an application to your desired institution along with all the necessary documentation, such as financial statements. In addition, you’ll have to submit a business plan specific to your new property. Any lender will want to see what your plans are, including a timeline, projected expenses, and expected profits. After the documentation is submitted, you’ll order an appraisal. This step is necessary for someone to value the purchase properly. 

The Advantages

Fix and flip loans are designed for this specific investment, so it makes financing a cinch. These loans allow you to get your funds quickly with flexible terms and low monthly payments. Additionally, you can protect your assets by using your commercial property as collateral. Your contract will also be written based on the investment opportunity and not your financial situation, which increases the opportunity for a wider range of people. Just be aware that interest rates can be high, the terms are generally short, and you may need a significant amount of cash upfront to work with.