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What is a Fix and Hold Loan for Real Estate Investors?
What is a Fix and Hold Loan?
A Fix and Hold Loan is credit used for property investors looking to buy and fix up a property to match quality living standards and then hold onto that property so as to rent the space out to tenants. It is a long-term loan that is useful for continued maintenance of a property, which one wishes to hold onto for appreciation in equities. Oftentimes, a Fix and Hold Loan is created in retrospect as investors start off with a Fix and Flip Loan. A Fix and Flip Loan is a short-term loan for those looking to sell off the property quickly once repairs have been completed. As one no longer desires to make quick equity growths through the Fix and Flip format, one can rent out the space to tenants such as Single Families, Multi-Families, or for Commercial Property, depending on the type and location of the property. This transition likely depends on the type of private lending loan one has and whether it can accommodate longer-term funding; however, this transition is common for a Fix and Flip Loan and typically occurs when the newly-appraised value of the property matches at least 75% of the loan as it signifies potential success for a Fix and Hold Loan.
Why get a Fix and Hold Loan over a Mortgage?
A Fix and Hold Loan is extremely beneficial to those looking to expand their equity and rental portfolio, and one of the benefits of a Fix and Hold Loan over a mortgage is that less of your money is tied down to the property itself. Unlike a mortgage, which typically asks for 20-25% of a down payment, a Fix and Hold Loan only asks for about 10%. The reason for this is because a mortgage is backed by a bank whereas a Fix and Hold Loan is backed by private money lenders who have specialty knowledge and expertise in property investments and can be more flexible and available in relation to one’s needs.
What is different about a Fix and Hold Loan from other private lending loans?
A Fix and Hold Loan specifies to investors who wish to remain in the renters business; as once they fix up a property, they continue to grow their property’s equity through the continued revenue from tenants. Unlike a BRRR Loan or a Fix and Flip Loan, a Fix and Hold Loan does not plan on selling the property off immediately to a high paying buyer or after enough proprietary equity has been gained so that the market value of the property exceeds the initial purchase, investment, and maintenance and construction costs combined. The Fix and Hold loan specifies to investors wishing to remain as landlords for a long period of time, and do not look for quick flips or quick gains in equity. It is private lending designed for investors looking to make good relations with a community through continued maintenance and reliability. That being said, a Fix and Hold Loan shares some similarities with the BRRR strategy and could also be used as a starting point for a BRRR loan if one wishes to sell their property off at a later date and restart the process. It simply depends on what one wishes to do with their proprietary investments.
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