Fixing and flipping a property presents real estate investors with enormous opportunity. In fact, the average gross profit from a fix-and-flip sale in 2022 was 26.9% - about $67,900 per property.
And while the term “fix-and-flip” can sound simple enough, it is not without its own share of challenges. For many real estate investors, the process of obtaining funds in order to rehab their purchased property can be a painful one.
This is why advanced rehab draws can make all the difference in completing your clients fix and flip projects with ease. Continue reading to find out how the rehab draw process typically works, why an advanced rehab draw is so beneficial, and what your clients can do to have access to this advantage for your next project.
The Typical Rehab Draw Experience
In the traditional fix and flip loan structure, there are two main components: the purchase component, which covers the property acquisition, and the rehab component, allocated for the property renovation. At the time of settlement, the investor receives the initial purchase component to acquire the property. However, the reimbursement for the rehab component is typically based on the completion of specific portions of the renovation work.
Obviously, this arrangement poses a less-than-ideal cash flow situation. Fix and flip investors must essentially "float" the project until each reimbursement draw is received. Even seasoned flippers and BRRR (Buy, Rehab, Rent, Refinance) investors find themselves resorting to credit cards and their available cash reserves to fund the renovation expenses while they wait for reimbursement from their lender.
Advanced Rehab Draws: A Benefit to Investors
While the traditional fix and flip funding process described above is not friendly to real estate investors,TVC Funding is one of the few private lenders that offers advanced rehab draws.
Unlike traditional funding methods, advanced rehab draws give investors access to money upfront for renovation costs. The money is usually given in stages based on specific milestones or completed parts of the renovation. This helps investors manage their cash flow better because they can use the funds right away to pay for materials, labor, and other renovation expenses, instead of relying on their own money or expensive credit options.
Advanced rehab draws bring many benefits to fix and flip investors. They offer more flexibility and make it easier to handle unexpected issues or changes during the renovation. This flexibility lets investors take advantage of good opportunities in the market and finish property renovations on time, which leads to higher profits. Also, advanced rehab draws reduce the financial burden on investors by enabling them to not use their own savings or credit cards up front. This enables them to work on multiple projects at once, expand their real estate business, and earn more money from their investments.
Find Out if You Qualify for an Advanced Rehab Draw
Overall, the access to advanced rehab draws give fix and flip investors an advantage by making projects smoother, improving cash flow, and increasing their chances of successfully completing more projects.
Your clients do need to fit certain criteria to qualify for an advanced rehab draw. As a private money lender built by real estate investors for real estate investors, we want to see you and your clients succeed - and that’s why we’re proud to offer investor-focused loan programs. Contact us today to learn more.