RTL Loans: How They Work + Real-Life Examples

Residential Transition Loans For Property Investors

Current as of

Interest Rate

9.5 - 11.25%

Origination fee

1.25 - 1.75%

Loan To Cost (LTC)

up to 90%

Construction Financing

up to 100%

Loan To ARV

up to 75%

Term

up to 24 months

Minimum Loan Amount

$100,000

Maximum Loan Amount

$5,000,000

Minimum FICO

650

Type of Property

Residential 1-4 units, condos, townhomes

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What Are RTL Loans

Residential Transition Loans (RTL loans) are among the most widely used financing options for real estate investors. These loans are particularly popular for fix-and-flip projects, as well as for construction and rehabilitation undertakings in residential real estate. Designed for short-term use, RTL loans cater to investors or developers looking to purchase, renovate, and resell properties quickly for profit.

Typically, RTL loan terms range from 6 to 24 months, making them ideal for short-duration projects. By enabling investors to leverage borrowed funds rather than tying up their own capital, RTL loans open doors to larger and more frequent investments. These loans offer fast and flexible funding solutions, allowing investors to maximize profits by using the property itself as collateral and leveraging their experience to execute successful deals.

In the RTL loan space, private credit acts as a critical source of capital for lenders, particularly because RTL loans require fast approvals and short repayment periods, which may not align with traditional bank financing. Lenders can recycle their capital by bundling RTL loans into mortgage-backed securities (MBS) or other financial instruments that can be sold to institutional investors on the securitization market. As such, private credit and the securitization market are integral to the success of RTL loans, providing the liquidity, flexibility, and scalability needed to support the real estate investment ecosystem.

The Main Types of RTL Loans

Example 1: Fix and Flip Loans

Fix and flip loans are specifically designed for real estate investors purchasing distressed properties to renovate and resell for a profit. These loans typically have terms ranging from 6 to 18 months and often cover 80% to 90% of the property’s purchase price.

A key feature of fix-and-flip loans is the option for interest-only payments, allowing borrowers to pay just the interest throughout the loan term. The principal is repaid at the end of the term, often using proceeds from the property sale. This structure provides flexibility for investors managing renovation costs and cash flow.

Example 2: Construction Loans

Construction loans cater to residential builders constructing new properties from the ground up. These loans cover both land acquisition and construction costs, with lenders typically disbursing funds in stages tied to project milestones.

The success of the loan application hinges on a detailed construction plan and timeline, as lenders assess the feasibility of the project before approval. Like other Residential Transition Loans, construction loans are short-term, and they can cover up to 100% of construction costs, depending on the project and borrower qualifications.

Example 3: Rehab Loans

Rehab loans are aimed at investors renovating properties to either resell for a profit or improve marketability. These loans generally cover both the property purchase price and renovation expenses.

The loan amount is based on the property’s After-Repair Value (ARV), enabling investors to finance projects with significant improvement potential. Rehab loans are often used for distressed properties requiring moderate to extensive repairs, making them a popular choice for investors targeting high returns through strategic renovations.

Key Characteristics of Residential Transition Loans

  1. Loan Terms

RTL loan terms usually span between 6 and up to 24 months, perfectly aligning with the timeline of most fix-and-flip or rehab projects.

 

  1. Qualification Criteria

Unlike traditional mortgages, RTL loans are primarily asset-based. This means the lender focuses more on the value and potential of the property than on the borrower’s personal financial profile, making them accessible to a broader range of investors.

 

  1. Loan-to-Value (LTV) Ratios

RTL loans often offer LTV ratios of up to 75% of the property’s purchase price, along with coverage for a portion of the renovation costs. This high LTV ratio enables investors to reduce their upfront cash requirements significantly.

 

  1. Interest Rates

Interest rates on RTL loans typically range between 9.5% and 11.25%%, depending on factors such as the borrower’s experience, the property’s location, and the overall risk associated with the project.

 

  1. Fast Funding

One of the most attractive aspects of RTL loans is their speed. Unlike traditional mortgages, which can take weeks or even months to close, RTL loans can often be approved and funded within a few days to a week, allowing investors to act quickly in competitive markets.

How Do You Qualify For An RTL Loan?

The application process for Residential Transition Loans (RTL loans) is generally more straightforward than applying for traditional financing. This is because RTL loans are asset-based, meaning the borrower’s personal financial situation is less critical. However, qualifying for an RTL loan involves several key factors:

Property Type: RTL loans are specifically intended for investment properties, such as single-family homes, multi-family properties, and commercial buildings. These loans are not available for primary residences.

Project Scope: Lenders require a detailed project outline that includes the scope of renovations, estimated timelines, budgets, and costs. The goal is to demonstrate the project’s feasibility and its potential for success.

Experience: Borrowers with prior experience in similar projects are often viewed as lower-risk by lenders. The more successful projects a borrower has completed, the higher their likelihood of approval and potentially better terms.

Exit Strategy: Lenders need to see a clear and realistic exit strategy. For RTL loans, this typically involves selling the property for a profit or refinancing it into long-term financing after renovations are complete.

Down Payment: With LTV ratios typically ranging around 75%, borrowers are usually required to provide a down payment of 20 to 25% of the purchase price. This ensures the borrower has some equity in the deal.

Credit Score: While RTL loans rely heavily on the property as collateral, a minimum credit score of 650 is often required. A higher credit score may improve the residential transition loan terms.

Property Appraisal: Lenders will arrange for a property appraisal or inspection to assess the current market value of the property and its After-Repair Value (ARV) post-renovation.

Is An RTL Loan A Good Fit For Your Needs?

Residential Transition Loans are ideal for investors seeking fast funding, flexibility, and a focus on the property’s potential rather than their personal financial history. These loans are well-suited for fix-and-flip projects, renovation efforts, or ground-up construction ventures. To determine if a residential transition loan is a good fit for you, consider the following:

  • Is a maximum of 24 months sufficient for my project timeline?
  • Can I provide a clear and feasible plan?
  • Do I have a well-defined exit strategy?
  • Can I provide a down payment of up to 25%?
  • Do I require quick access to funds?

Ultimately, Residential Transition Loans offer rapid funding for borrowers who can present a clear project plan, a sound exit strategy, and sufficient upfront equity.