Many people look to the real estate market as a reliable and lucrative avenue for financial growth. Flipping houses is one way to take advantage of this market to earn money. However, it can always be a good way to lose money if you don’t know what you are doing. When you want to flip a house, you may find yourself asking what the difference between flipping and rehabbing is.
Flipping Vs. Rehabbing
The short version of the difference is simple: there is no difference. The long version is a little more complex but at the end of the day, it mostly comes down to marketing.
Typically, you are confronted with this difference in the lending market. A lender may offer a rehab loan or a fix and flip loan. Both of these types of loans are essentially the same thing. However, they can be used a little differently by lenders, primarily for marketing purposes.
Rehabbing is usually used to describe loans for real estate markets with historic properties. Conversely, flip loans may be used for markets where single-family homes are being updated and quickly sold again.
How the Loans Work
With a conventional mortgage, you can a percentage of the home’s purchase value while putting up the rest as a down payment. This doesn’t work for house flipping in many cases because it wouldn’t cover the cost of renovations. Some lenders offer special loans for this type of home purchase that allow you to borrow against the after-renovation value of the home.
The setup is simple: you come to an agreed after-renovation value of the home with the bank and borrow on that number. Otherwise, these loans are a lot like any other mortgage. They may be more expensive, but they also sometimes have incentives such as interest-only payments for several months.
Which Do You Need?
You can likely use either a fix and flip loan or a rehab loan. However, you will want to examine the market and the rates of each. Keep in mind that areas with rehab loans are likely to be more historic. Therefore, there may be ordinances that limit what you can change on your property.
Whatever you decide on, you can find the finances to make your house flipping goals a reality. The distinction between rehab and fix & flip loans is mostly marketing. So, when you go to take one out, focus on the details on the loans, not the meaning of the terms.
