In real estate, fix-and-flip strategies can deliver quick profits, but building long-term wealth requires a different approach: that’s where the fix-and-rent strategy comes in.
You can build a strong, cash-flowing portfolio over time by repairing and renting out properties in desirable areas. Modern renters value updated amenities and well-maintained properties, and if you can spot hidden gems before the competition, you’ll set yourself up for lasting success in the market.
What Is Fix to Rent?
The fix-to-rent process aligns with the BRRRR strategy: buy, rehab, rent, refinance, repeat. It involves buying distressed or undervalued properties and renovating or upgrading them to increase their value.
Experienced real estate investors may secure the best deals in established, thriving communities through auctions and networking, while also taking calculated risks on properties in up-and-coming areas undergoing modernization and improvement. Then, they’ll use a bridge loan to purchase the property and fund the renovation.
Once renovated, the investor rents out the property and refinances with a long-term DSCR rental loan. Qualification for DSCR loans is based on property cash flow, not personal income. Investors can also refinance the property into a DSCR loan using an LLC. DSCR loans offer lower interest rates and monthly payments compared to the short-term fix-and-flip loan, allowing for greater earning potential.
Benefits of a Fix-to-Rent Strategy
Fix-and-rent strategies offer several advantages. First, they offer market resilience and financial stability with consistent income. Investors enjoy reliable income from monthly rental payments, which typically cover loan payments, taxes, and maintenance costs, reducing their financial risks.
Second, holding onto a property provides benefits from market appreciation. Investors may experience significant value increases after renovations and other property repairs over the years. Carrying a property long-term also provides a strategic advantage, allowing investors to maximize their returns should they decide to sell.
Third, tenants help pay down mortgages on properties, allowing investors to build equity. Greater equity means opportunities for future investments and portfolio diversification.
Finally, the fix-to-rent strategy provides several tax advantages. Some of the more lucrative benefits include:
- Mortgage Interest Deductions: Interest paid on loans used to acquire or improve rental properties can be deducted, reducing taxable income.
- Depreciation Deductions: Investors can deduct a portion of the property’s value each year to account for wear and tear, even without bonus depreciation.
- Repair and Maintenance Write-Offs: Expenses for necessary repairs and maintenance can be deducted in the year they’re incurred, lowering taxable income.
Also, you may qualify for a 1031 exchange when selling and reinvesting in similar properties, allowing you to defer capital gains taxes. The rules are tricky, so discuss this with a financial expert or tax professional.
How to Finance Your Fix and Rent Strategy With Dominion
To finance your fix-and-rent strategy through Dominion Financial, first apply for a bridge loan. Our program offers:
- Up to 100% LTC
- No appraisals
- Closing in 48 hours
Then, when renovations are complete, refinance with a rental loan. We offer up to 80% LTV and the most competitive pricing with our DSCR price-beat guarantee. Contact us today to learn more and start your application.
