Fix and Flip: Why the Market is Making its Resurgence
The 2008 recession hit everyone hard, and for years afterward, it seemed as if the economy would never recover. However, like everything is apt to do, it began to heal, and in the process, home prices—which were hit the hardest by the recession—began to rise again. As a result, fix and flip saw a resurgence.
For many people, the idea of taking a rundown home, hiring someone else to fix it up and then selling it for five times what they purchased it for is a magical one. However, most people don’t have the money to invest in house flips. If they turn to banks for financing, they may or may not get the funding they need, but even if they do, they may be required to repay the entirety of the loan within a year. They also come with risks, such as the inability for developers to pay back what they owe. But that doesn’t mean that people aren’t investing.
It’s true that hard-money loans, or “fix and flip loans,” as they’re called in the industry, do come with some risks, but banks actually feel more comfortable handing out such loans than they do traditional mortgage loans. Why? Because the housing market is up, and even if a home doesn’t sell right away, it is likely to sell. Also, if a developer cannot meet the year or less deadline, banks are willing to work with them on developing a solution.
Additionally, hard money loans are processed much more quickly than traditional mortgage loans, making it easier than ever for a developer to pick up a hot piece of property before it garners too much attention and therefore, sees a spike in price. Most fix and flip loans are processed within a week, whereas traditional home loans take months to go through. For smaller flippers and house builders, such a speedy turnaround time enables them to take on more work and therefore, repay the loans they owe much more quickly. It also gives them a steady cash flow to start investing in homes out of pocket, thereby putting more money back into the economy.
For years after the recession, it seemed like the housing market would never recover. Boarded up windows and Foreclosed signs seem to pockmark every neighborhood, and served to remind investors and builders alike that real estate is a fickle business. However, the economy did recover and so did the housing market, and now the fix and flip business is thriving once again.