Renovated home with new roof, porch and landscaping with pink flowers

Why Financing for Flipping Houses Is an Ideal Way to Create Affordable Housing

Old fixtures, leaky roofs, outdated HVAC units, and dated kitchens – these are the kinds of issues that cause buyers to reject houses. But these things are all fixable. With a little cash and a lot of elbow grease, declining houses can be remodeled, ready for new owners or renters. And that’s good news, because today’s market is desperate for affordable housing.

According to Freddie Mac, the Federal Home Loan Mortgage Corporation, the housing market in America is short by 3.3 million homes. Many factors contribute to the shortage, but the problem can be boiled down to a supply and demand problem. Building and land costs are on the rise, resulting in fewer homes being built, while at the same time people are retiring at unprecedented rates and millions of low-cost housing units are leaking out of the market. About half of the units that are available are more than 50 years old, which means they need a lot of TLC if they’re going to be reclaimed and repurposed.

In addition to the supply problem, 20.5 million renters pay more than 30% of their income for housing, and 9.5 million pay more than half. They need more affordable housing options to help them stay afloat.

One part of the solution is to increase the stock of workforce housing (i.e., affordable homes for those who make between 60% and 120% of the median income in a given area). Experts believe building new housing won’t be enough. To keep the supply of available, affordable houses stable, state and local communities will need to find ways to supplement the shrinking stock of low-cost rental homes. That means the real estate investor who flips houses is a key part of the affordable housing solution.

How Fix-And-Flip Loans Help Address the Housing Crisis

Earlier this year, several members of our team heard Greenville, S.C., Mayor Knox White speak at a conference where he talked about the affordable housing issue. He said that one lesson he learned from a recent visit to Austin, Texas, was that the best way to address the affordable housing crisis is to prevent leakage in existing housing stock.

This isn’t breaking news to us at Lima One. Every day, we work with investors and individuals to accomplish exactly this goal. Through our fix-and-flip loan program, we support house flippers who want to take old, outdated houses, renovate them, and resell them. Other investors clean up homes to use as single-family rental investment properties, especially given the low interest rates available from mortgage lenders right now.

“Fix-and-flip loans from Lima One help neighborhoods improve,” said Lima One CEO Jeff Tennyson. “Our loans provide better housing options for those who can’t afford to buy their own. Our loans allow family members to live and work in their chosen neighborhoods, allow their kids to attend their chosen school, and enable people to live close to friends and family. I am truly proud of our company and what we do every day to make a difference in our world.”

Improving the family neighborhood is Lima One’s calling. Many investors use our loan products to update or upgrade existing housing stock to address affordable housing needs. Are you ready to become one of them?

Is a Fix-and-Flip Loan Right For You?

In addition to policy moves like local rezoning and broader access to credit to support building or buying, real estate investment in the form of housing preservation is one of the most important steps that can be taken to increase availability of affordable rentals. Older, outdated houses need to be rehabilitated so they don’t leak out of the housing market, especially as more people retire and make changes in housing arrangements.

That’s where fix-and-flip loans can help.

Whether you’re considering a light flip that requires mainly aesthetic changes or a heavy rehab with major upgrades, a fix-and-flip loan gives you access to the capital you need.

For example, at Lima One, our FixNFlip loan terms include:

  • Up to 90% of purchase and rehab costs
  • Up to 75% loan to ARV
  • 13 month term
  • Credit scores of 600+ eligible

Of course, with a house flip, you’ll need to consider basic loan terms like purchase price, origination fee, and interest rate. Unlike with your primary residence, you’ll need to make sure these costs plus rehab costs leave you money for a healthy profit. The best private lenders, like Lima One, will ensure the numbers work in your favor before extending you a loan.

Rehab costs will vary based on the extent of the renovation you have planned. Here’s a quick look at what you can expect from a light flip as compared with a heavy rehab:

Light Rehab

Expect to upgrade flooring, paint, and other aesthetic features (goodbye, popcorn ceilings). You may also need to replace lighting and plumbing fixtures. Estimate about $10-$15 per square foot.

Heavy Rehab

This will include aesthetics as well as heavy-duty renovations such as a complete kitchen or bath remodel, foundation repair, roof replacement, and appliance repair or replacement. Often investors even add square footage to match other remodels in the neighborhood.  Costs to successfully flip range widely depending on how heavy the rehab is.

Either way, by repairing and upgrading the property, you can keep the unit available for use rather than allowing it to become a housing market casualty.

Fix and flip loans are ideal for investors who want to upgrade and sell a property quickly, but they aren’t the only option. Depending on your specific circumstances, you may also want to consider a long-term rental loan with full amortization and a 30-year term.

If you’re uncertain which loan program is best for you, our team is standing by to assist you! We’re committed to helping real estate investors find the best loan option for their unique situation so they can invest in communities they care about. Our construction management team will help you confirm that your rehab budget is right for your property, and our sales team can help you identify the right amount of flexibility you need to buy or hold the property.

Contact us today and join a group of investors around the country who are improving the family neighborhood with affordable housing.

Lima One Capital, LLC. NMLS ID # 1324403, 201 E. McBee Ave. Suite 300. Greenville, SC 29601. Lima One Capital, LLC is not currently licensed in AK, ND, NV, SD, or VT. Lima One Capital, LLC is licensed or exempt from licensing in all other states. Minnesota: This is not an offer to enter into an agreement. Any such offer may only be made in accordance with the requirements of Minn. Stat. §47.206(3). Lima One Capital, LLC is licensed in Arizona as a Mortgage Broker (License No. MB-0936439) and Mortgage Banker (License No. 949706). Lima One Capital, LLC is licensed as a California Finance Lender under Department of Business Oversight (License No. 60DBO-45834). Lima One Capital, LLC is licensed in Florida as a Mortgage Lender (License No. MLD1555) and Mortgage Servicer (License No. MLD1662). Lima One Capital, LLC is licensed in Oregon as a Mortgage Lender (License No. ML-5397). Annual percentage rate may be increased after fixed-rate period expires. Loans are subject to additional underwriting criteria.