Don’t jump into a fix-and-flip project without fully understanding your financing options. Here’s the reality: choosing the wrong loan type can cost you more in the long run.
At PRM Capital, we believe in setting you up for success by helping you understand the difference between short-term and long-term loans, and how each impacts your project. Each loan type offers unique benefits depending on your project timeline and financial goals.
Interested in learning which loan type is the best fit for your next property investment? Keep reading to find out the key differences between short-term vs. long-term loans:
Short-Term Loans for Fix and Flip Projects
Short-term loans are popular among fix-and-flip investors due to their flexibility and faster payoff schedule. Typically lasting from 6 months to 3 years, these loans provide the funds you need to buy, renovate, and sell a property within a shorter timeframe.
Pros of Short-Term Loans
· Quick Access to Funds: Lenders often approve short-term loans faster than traditional long-term financing, allowing you to secure a property quickly.
· Flexibility: Since these loans have shorter durations, they’re ideal for investors who plan to buy, renovate, and sell properties in rapid succession.
· Lower Interest Over Time: Though the interest rates on short-term loans may be higher, you pay less in total interest because of the shorter repayment period.
Cons of Short-Term Loans
· Higher Monthly Payments: Short-term loans come with higher monthly payments since the balance must be repaid within a short time.
· Higher Interest Rates: Interest rates are often higher for short-term loans compared to long-term financing.
· Quick Turnaround Required: These loans require you to complete and sell the property quickly, which can be risky if renovations take longer than expected.
Long-Term Loans for Fix and Flip Projects
Long-term loans typically have terms lasting from 5 to 30 years, making them suitable for investors who plan to hold onto a property for a longer period before selling or refinancing. These loans are often used when the fix-and-flip project may take more time or when investors plan to rent the property before selling.
Pros of Long-Term Loans
· Lower Monthly Payments: Since the loan is repaid over a longer period, monthly payments are lower, making it easier to manage cash flow.
· Potential for Better Interest Rates: Long-term loans often come with lower interest rates, reducing your overall cost.
· More Time for Renovations: You’re not under as much pressure to complete the project quickly, giving you more time to make improvements and potentially sell the property for a higher profit.
Cons of Long-Term Loans
· More Interest Paid Over Time: Despite the lower interest rate, paying the loan over many years results in higher total interest payments.
· Slower Build-Up of Equity: With a longer-term loan, you build equity in the property more slowly compared to a short-term option.
· Commitment to a Longer Timeline: These loans require a long-term commitment, which may not be suitable if you aim to turn a profit quickly.
Short-Term vs. Long-Term Loans: Which is Best for Your Fix and Flip Project?
Choosing between short-term vs. long-term loans depends on your financial strategy and project goals.
Please note: If your primary focus is on fast returns and completing multiple flips in a short period, a short-term loan may suit your needs. On the other hand, if you plan to hold onto a property for a longer time before selling, or want to minimize monthly payments, long-term financing could be the better option.
PRM Capital offers flexible fix and flip financing. Our experts can help you choose between short-term and long-term financing to meet your specific goals. Partner with us to learn more about our fix-and-flip loan requirements, loan rates, and loan refinance, and how we can help fund your next investment project. Contact us today!
