Fix and Flip

Single-Close Loan Tips

3 Keys to a Successful Fix2Rent loan

The team here at Lima One Capital was thrilled to announce the industry’s first single-close Fix2Rent loan at the beginning of August. This loan product provides construction to permanent financing for residential single-family rentals, duplexes, triplexes, and quadplexes.

The first Fix2Rent loan closed was on a property in Bradenton, Florida, and our sales, underwriting, and construction management teams have worked with investors across the country since then to determine whether a Fix2Rent or Build2Rent loan is right for their investment opportunities.

We asked our team to share some insights about what kinds of investments best fit in a FixRent loan, and what borrowers need to be aware of as they pursue a rehab to rental loan. Here are the things they thought borrowers should know.

3 Ways You Can Prepare for a Fix2Rent Loan

1. Research both rents and sales

A Fix2Rent loan has to meet standards for both a FixNFlip and a Rental30 loan. This means it’s important to know both what the ARV will be after the rehab is completed and what the DSCR looks like for the long-term rental.

So borrowers need to do a little more legwork on the front end in studying comps for both sales and rent rolls in the areas surrounding the properties they’re considering. Doing this work will make the underwriting process quicker and smoother, and will ensure that the opportunity works well as a Fix2Rent project.

2. Have a flexible strategy

One of the things we’ve found is that some projects offer incredible profit as a fix and flip loan, but are only marginal opportunities as long-term rentals. So even if you prefer to employ a BRRR strategy or other long-term portfolio building solution, be prepared to pivot if a the property works best as a filp.

When you have the option to go with either a short-term or long-term strategy, you can get the best investment possible. The Lima One Capital sales and underwriting team will be happy to pursue multiple avenues with you so that you can see the difference and make the best decision. In fact, we have already seen investors decide to move from a Fix2Rent to a FixNFlip loan mid-process after seeing the numbers.

3. Look for more doors

Because rental income is a key factor in the success of Fix2Rent projects, our borrowers have found that duplexes can be ideal rehab to rent projects. Lima One Capital currently offers Fix2Rent on single-family rentals with up to four doors, so the same advantages are available to investors who have a triplex or quadplex deal as well.

More Fix2Rent Tips to Keep in Mind

Allow a little extra time: Because we are underwriting and closing two loans in a single close, the process usually takes 1-2 extra business days. Be aware that you may need a little extra time to complete a Fix2Rent loan when you schedule closing.

Two sets of documents: With a Fix2Rent or Build2Rent loan, you will sign two different Estimate of Costs documents and two different HUD statements.

Title company: Because Fix2Rent is such a new product, Lima One Capital has chosen to use only one title company. This ensures a seamless conversion of the loan to a long-term loan. This means you won’t be able to choose your title company with a Fix2Rent or Build2Rent loan.

Commitment funding: This borrower-friendly feature allows an investor to delay paying interest on rehab funds in a loan until actually drawing them . So a borrower who funds the early stages of construction out of pocket saves on interest. Commitment funding is available only for experienced flippers on FixNFlip loans, but everyone is eligible for this benefit on Fix2Rent loans. This factor can help an investor who is starting with the BRRR strategy save money through a Fix2Rent loan.

Opportunity Zone: In talking to veteran investors, we've seen how the Build2Rent single-close loan fits well for Opportunity Zone investments. Investors who plan to hold properties in Opportunity Zones to reap tax benefits should investigate how single-close construction to perm financing can fit their goals.

The Fix2Rent loan has already proven to be incredibly popular with borrowers. Apply now if you’re ready to save on interest and fees and enjoy the single-close convenience of a Fix2Rent loan.