FAQ

Fix and flip real estate investments are generally funded with either combination of the borrower’s own cash and a private lender. Traditional banks generally do not fund fix and flip deals do the complexity of the deal. Fix and flip properties are generally distressed properties that need renovations in order to be sold or rented out. Private lenders are an excellent source of capital for fix and flip deals, since private lenders will lend on both the initial purchase as well as the renovation costs.

A hard money loan is a loan that is primary underwritten based on the value of the underlying asset. A traditional bank loan or mortgage is underwritten on several factors- borrower income, borrower credit and value of the asset. The streamlined underwriting process of a hard money loans makes the turn-time to close much faster than a traditional loan. Also, borrowers with lower credit or minimal income documentation

Transactional funding is a borrowing process where an investor borrows short-term capital to close a deal that they have under contract. It’s also known as ABC funding, flash funding, same-day funding, or a one-day bridge loan. Transactional funding is needed when a contract of sale cannot be assigned, but the buyer (let’s call them “B”) on that contract needs to “flip” it to another buyer (let’s call them “C”). We’ll call the seller in this case “A”. So in this case, the A-B portion of the deal will have to fund and close before the B seller can sell to the C buyer. Transactional funding will be provided to fund and close the A-B deal. Once it’s closed, B will sell to C. This typically happens in the same day.

DSCR stands for Debt Service Coverage Ratio. In simple terms, this is a loan where the property cash flow can cover the debt service of a property. The property Cash Flow is calculated by taking the rent roll and subtracting taxes and Insurance, as well as any HOA fees or required maintenance. Debt Service is the principal and interest payment of the loan. DSRC loans typically have to have Cash Flow that is 1.1x the property Debt Service.