Rehab Property vs. Fix-and-Flip: What’s the Difference?
The right loans can make or break a business venture, and when you’re in the business of turning and reselling properties, that’s even truer than it is for a lot of other business models. Whether you’re looking to rehab property you can use for rental income or you’re finding your way into the rapid resale market, there are a lot of opportunities out there for the entrepreneur with a plan. Unfortunately, the marketing around commercial loans can sometimes sow confusion. After all, both rehabbing and flipping require a lot of improvement, and some people who say they are rehabbing are actually returning properties to the market. So what’s the difference? And how much does it matter if you pick a rehab loan versus a fix and flip?
The truth is, rehab loans, bridge loans, and fix and flip loans are pretty much the same product with different marketing. You can tell by the parameters and terms of the loan product. While there is a lot of difference between traditional loans, construction loans, and bridge loans, the differences are in the structure of the loan, so it’s easy to tell them apart. If you look closely, both rehab property loans and fix and flip loans have the same terms, and they are almost exactly the same as the generic bridge loan for properties, with some variation from lender to lender.
Why do banks and other lenders do this? Well, believe it or not, it’s to make it easier to tell when a loan is going to work out for you. While it can be a little confusing if you’re in a gray area marketing-wise, hearing that a loan is designed for rehabbing troubled properties is a lot clearer than hearing it is a short-term bridge loan for commercial properties. The same goes for calling it a fix and flip. If the loan has terms of 36 months or less, interest-only payment options, and the ability to cover 90 percent LTV or higher, that describes all three loan types. Rehab and fix-and-flip are just alternatives for the bridge loan label.
So what is this loan for? Resale, or refinancing after improvements? Bridge loans are designed to do what their name says, they are a bridge between acquisition and long-term financing, whether that financing is for you as a property holder or for the new owner after you resell. If you’re looking to rehab property and you want to get your best deal on loan products, knowing this is an important part of getting your best rates because it gives you more options for lenders.