At Avestor, we recognize that the fix-and-flip market is a high-risk, high-reward venture where timing, strategy, and financing are essential to success.
Unfortunately, traditional financing often falls short on delivering capital when needed, leaving many entrepreneurs facing limited flexibility and delays that can derail their projects. Similarly, hard money lenders take large fees reducing the overall profit an entrepreneur can make on a project.
Avestor’s customizable fund model offers a game-changing solution.
Customizable funds offer fix-and-flip entrepreneurs flexible funding, operational efficiency, and greater control. Let’s take a deeper dive into how Avestor’s customizable fund can be the key to scaling your fix-and-flip business.
Why Financing Fix & Flip Projects is Tough?
Fix and flip is a real estate strategy where entrepreneurs buy distressed properties, renovate them, and sell them for a profit. But despite its popularity, the fix and flip market remains highly fragmented, with traditional banks viewing these deals as too risky to finance.
Unlike standard residential or rental properties, fix and flip projects don’t qualify for conventional loans. This pushes entrepreneurs to rely on hard money lenders. However, hard money lenders often come with their own set of challenges, including high fees, re-trading deals at the last moment, and slow funding processes.
Challenges with Hard Money Lenders
- Changing Terms at the Last Minute: Hard money lenders often change terms just before closing, a practice known as re-trading. This can kill deals, especially if interest rates fluctuate. By creating a customizable fund, flippers can avoid this uncertainty since they set the rates and terms.
- High Fees: Flippers often get hit with various fees, including origination, high interest, draw, and appraisal fees, adding significant costs to each deal. A customizable fund allows investors to eliminate most of these fees, saving substantial amounts on each project.
- Delayed Draw Schedules: Hard money lenders typically release funds in stages, requiring flippers to complete specific phases before receiving the next tranche. If the approval process is slow, it can disrupt schedules and lead to contractor dissatisfaction or project delays. Customizable funds allow flippers to set their draw schedules, providing full control over their cash flow without being dependent on third-party approvals.
How Customizable Funds is Better for Your Fix & Flip Strategy
Customizable funds empower fix and flip entrepreneurs providing more control, flexibility, and financial efficiency. Here are key ways these funds can enhance your fix and flip business:
Control Over Capital Raising and Speed of Deals
Flippers need access to cash quickly to purchase and rehab opportunities. With a customizable fund, entrepreneurs can create a fund that allows them to raise capital from investors directly bypassing a direct lender. Flippers can set their own terms based on their business needs vs being controlled by direct lenders. This enables flippers to access cash from the fund as needed.
Eliminate High Fees and Reduce Costs
With customizable funds, you eliminate the majority of fees associated with hard money lenders. You can bypass origination fees, high interest rates, and other unnecessary costs, keeping more profit from each flip. This makes your operations more cost-effective and scalable in the long run.
Independent Draw Schedules for Seamless Project Flow
Customizable funds provide the flexibility to set your own draw schedules, allowing for seamless project flow without waiting on third-party sign-offs. This ensures contractors are paid promptly, keeping projects on track and avoiding delays that could derail progress.
Gap Funding and Scaling Your Operations
Many flippers need to come up with a 20-30% down payment, often resorting to borrowing additional funds (gap funding) for this purpose. By using a customizable fund, you can raise the capital needed for down payments, enabling you to scale into more projects without depleting your cash reserves.
How Customizable Funds Elevate Your BRRRR Strategy
The BRRRR (Buy, Rehab, Rent, Refinance, Repeat) method is another popular real estate strategy that benefits from Avestor’s customizable fund model. BRRRR investors often face challenges with refinancing and securing capital for multiple properties simultaneously.
But our customizable fund model provides a seamless solution:
- Efficient Capital Recycling: Our customizable fund model allows BRRRR investors to recycle capital more efficiently. Instead of dealing with complex and lengthy refinancing processes, investors can structure their deals within the fund, streamlining the capital flow needed to move from one property to the next.
- Flexible Financing Options: In the current climate, where high interest rates make refinancing more difficult, a customizable fund’s ability to raise both debt and equity (or a combination of both) can provide critical financial flexibility for BRRRR investors. This flexibility helps secure the right financing at each stage of the BRRRR process, making it easier to fund rehabs, rentals, and refinances.
- Pooling Multiple Rental Properties: BRRRR investors can pool multiple rental properties into a single fund, creating diversified income streams while reducing risk. This approach not only makes the investment more attractive but also simplifies management and reporting.
- Continuous Offerings for Liquidity: Avestor’s continuous offering feature allows BRRRR investors to offer liquidity to their investors, providing exit opportunities that aren’t typically available in traditional real estate investments. This makes the fund more appealing to partners who prefer flexibility in their investments.
The Future of Fix & Flip Funding: A New, Flexible Approach
Avestor’s customizable fund model addresses the key challenges faced by fix and flip investors, offering a solution that is not only flexible and cost-effective than traditional financing and hard money lenders but also tailored to the unique needs of this market.
By allowing for diverse deal structuring, pooling multiple properties, and offering continuous offerings with investor-friendly liquidity, customizable funds empower fix and flip entrepreneurs to scale their operations without the typical financial and administrative constraints.
Whether you’re an experienced flipper or just starting, leveraging the power of Avestor’s customizable funds can be your next big move in maximizing profitability and operational efficiency in the fix and flip industry.
To know more about how we can help you get started with your fix and flip fund, book a call with us at: avestorinc.com/demo
