Tips for Negotiating your Next Fix and Flip Loans

Flipping homes is one of the most lucrative ventures in real estate, offering high profits. It is this factor that entices many beginners to try their hands with fix and flip investing. However, whether you have funds or you are counting on the fix and flip loans, you need research, analysis, and be profitable. This is mandatory, in particular for those people who are planning to take loans for flipping houses. Arranging for fix and flip funding is the cost of investment, and you need to keep it in control to ensure you have a pretty sweet profit margin. One tactic that professionals use is to negotiate the best options for fix and flip loans. If you know how to negotiate, you can generate better deals and, ideally, maximize your profits. Here we share some tips to help you negotiate your next hard money fix and flip loans.

Research multiple lenders

  You should look for more than one lender for fix and flip loans. Traditional banks and credit unions are a popular option for this kind of loan, but today there are several private lenders that can help you with fix and flip funding. Then there are online lending platforms like Simplending that cater specifically to real estate investors. Keep in mind that each type of lender may have different lending criteria and requirements. Focus on interest rates and terms after you have shortlisted the potential lenders. Interest rates can significantly impact your overall borrowing costs, but you should also consider factors like loan origination fees, prepayment penalties, and closing costs. Do not pick lenders randomly; look for reviews and testimonials for other real estate investors.

Have ample reserves

  Now if you are dealing with private lenders, you will want to maintain plenty of cash of your own. Why would you do that when looking for loans for flipping houses? Because lenders love borrowers with ample reserves as it lowers the risk that such borrowers will default. No matter how much cash flow you generate, always negotiate the loan offer based on your reserves because lenders know you can make timely payments. This is why you should create a cache of cash before you apply for fix and flip funding. Having ample reserves also indicates that you can handle any unexpected expenses that will occur during the renovation process. Remember, if you are strapped for cash, it will not work in your favor as you are most likely to cut corners during the renovation process and very likely to be late on payments.

Negotiate the price with the owner for fix and flip loans

  One thing about fix and flip houses is that you work directly with the owners. This opens up several negotiation opportunities which you can utilize to further bring down the purchase cost. Here are some methods to use. Let the owner walk you through the property so you can point out the things that need fixing and will cost you. That's how you can ask for a discount. Be open about what you do by letting the owners know you will fix and flip the house for a 10% profit. Show them the numbers and explain how it only makes sense to take on the project if the purchase price remains within the limit. Most owners will understand that it's business rather than begrudging you for making profits. Finally, use a psychological trick where you ask them, "Is that the best you can do?" and try to act uncomfortable. It often prompts owners to negotiate the price.

Offer collateral

  To make money fixing and flipping houses, you need significant capital upfront to pay for renovations and remodeling of the property. Certainly, it is good to have funding, but if you cannot get it from partners or loans from others, you should try to negotiate the fix and flip loan rates by offering collateral. Right now, you want favorable loan terms, and by offering your assets, such as additional properties or investments, as collateral, you offer additional security that lenders want and negotiate a better deal for yourself. The collateral aims to provide the lender with an extra layer of security in case you default on the loan. If you do not have a single asset valuable enough, you can ask if your lender allows cross-collateralization, where you use multiple properties as collateral for a single loan. However, this comes with a catch because if you default on one property, all the collateral properties might be at risk.

Conclusion

Fix and flip projects are unique, and each has different funding requirements. You can arrange for fixed and flip funding with the right negotiation tactic to maximize your profits. Remember to tailor your approach to suit the specific private money lenders and project, and use the tips we have shared here for the best negotiation terms.