You know the G.I. Joe classic “Knowing is half the battle”? Having the right vocabulary at your disposal can make your fix and flip ventures that much easier. Whether you’re new to the business or a seasoned veteran, knowing the right cues and phrases when working on a deal is essential to building trust, communication, and ultimately your success as a real estate investor. Check out some of the key terms that can strengthen any prospects in your fix and flip dealings:
Financial Terms for Fix and Flippers:
Bridge Loan: Sometimes conflated with a Hard Money Loan, a bridge loan is a short-term financing option which provides the loan recipient with rapidly-disbursed funds. Most often a bridge loan is for situations that do not require construction or renovation money and is to be repaid within 12-18 months. Should the loan recipient need further financing, the bridge loan will be paid off with a Long-Term Loan.
Hard Money Loan: Hard Money Loans can include bridge loans, but are defined by their privately-funded loan programs. Typically, hard money loans carry with them higher interest rates than traditional loan options with shorter terms.
Long-Term Loan: Long-term loans are typically referred to as “Traditional Loans” and include primarily mortgages in the fix-and-flip industry. Typically, long-term loans are utilized only when projects have a hard time moving or being flipped in a timely manner.
Origination Points: Sometimes referred to as only “points”, origination points are a fixed percentage that is added to a loan based on the work which the lender provides throughout the lifetime of the loan. Origination points can differ and be potentially negotiated based on the degree of risk of the loan, borrower’s credit history, and loan amount.
After Repair Value: After Repair Value, or ARV, is the anticipated value of a project after your fix and flip is completed. The ARV is useful to loan providers when determining the risk of their investment.
Real Estate Terms for Fix and Flippers:
Distressed Properties: Distressed properties are often healthy targets for fix and flippers; such properties are those which have been repossessed by a bank or municipality due to neglect or defaulting on the mortgage payment or a home which was short saled.
Short Sales: A home which has been sold short is one which has been sold for less than what the Seller owes their bank. There can be a process with the Seller’s bank to obtain approval for the reduced sale price.
REO: Standing for Real Estate Owned, REO refers to properties which are owned by a bank.
SOW: The SOW or Scope of Work refers directly to the document which lays out exactly the work which is to be performed by a contractor on a property.
Comparative Market Analysis: The comparative market analysis or CMA is a report which details the nature of the real estate market surrounding your prospective project. The CMA often considers active listings for similar properties in order to best determine the After Repair Value of your project.
There is always more to learn in the fix and flip business, but having the basics down is always a good place to start. Even with all the vocabulary in the industry under your belt, getting your fix and flip projects underway can be a challenge, and EMCAP Lending is here to help. Our team of financing professionals is eager to help you secure your next property. To see how EMCAP Lending can help you, contact us today.