Flipping Crazy: What to know before getting into property flipping
From Fixer-Upper to Flip or Flop reality television is filled with shows that make real estate investment look like a breeze. You just find a sad looking home, swing a hammer a couple times, have an open house and Viola!– a nice profit appears and you’re ready to start the process again. Unfortunately, in real life there are a couple more steps and a lot more dirty hands that go into flipping a home, but it can be a lucrative business if you’re willing to put in the hard work. Here’s what you need to consider before getting into investment property renovation aka house flipping.
Money Talks
To flip a house you need to have a house and in a tight housing market, this could be your biggest challenge. Ideally, you’ll have enough cash to outright buy the home you’re planning to flip, but for most people this isn’t realistic, especially in their first endeavor. Traditional mortgages and loans typically don’t work in this scenario either, at least not with current market conditions, as these require inspections and often contingencies that investors with cash in hand don’t.
If you’re serious about getting into property investing before you have the funds necessary to buy a home with cash, there are a few ways around this. While you should always consult with a professional to find the solution that will work best for you, there are options including revolving credit lines, hard money loans, or even private lenders.
It may seem strange to worry about the finance side of things before you even look for a house, but trust that this is the cornerstone of everything else to come.
Keep an eye–and ear– out
If funding the purchase seems like the hardest part of flipping a home, wait until it comes time to find the home. The real estate market is ON FIRE in certain parts of the United States right now. In some places it’s hard to even find a small starter home for less than $1 million, while in others everything under $200,000 is flying off the shelves. So how can you find your first project home?
One of the best options is to consider your personal network. Has Granny decided to move to Florida for good or have your neighbors mentioned they’re planning to sell their two story Victorian for a ranch where they can age more comfortably? Knowing about these deals before an agent or your competition does will be vital to your success.
If you go through your contacts and still don’t have any leads, it’s also a good idea to check online auction sites and postings for a Sheriff’s Sale. Most of these auctions sell these properties as-is, where-is so you won’t get the luxury of really understanding the scope of work to be done, but they may be your best chance to score a deal.
Be Realistic
The magic of television makes it easy to think that with just a few coats of fresh paint and a couple of new fixtures you can have a nice $100,000 profit on your hands. Unfortunately, that’s not quite how things work. When devising your budget for renovating a home, you’ll have to consider what needs to be done, who will do it, and what it will cost.
If you’re very handy, you may be able to tackle a lot of the project yourself,although keep in mind that your time also has a dollar value attached to it, so add that to your financial plan accordingly! If you’re planning to hire a contractor to do the work for you, make sure that is budgeted in your plan as well and in either case, budget for at least 15% more than you think you’ll need because things tend to run slow or over cost.
Stay Focused
When you’re tackling a house flipping project, time is money. Every day that you have the property is a day that you’re losing money. Taxes will have to be paid, as will utilities, and potentially HOA fees. The faster you can complete your renovations and sell your property, the more money you’ll be able to keep. Staying focused is also very important while making decisions during the renovation. Keep in mind that while you might love the look of intricate hand-stamped walls, the future buyer might just be thinking of how they can cover it up. Don’t spend time or money on things that don’t add value or up the selling price.
Find a Mentor
Above all, one of the best ways to set yourself up for success is to enlist a mentor. If you can find someone in your area who is already into property rehab, they will be your biggest source of knowledge and information. They’ll be able to key you in to what kind of margins you can expect, connect you to the right contacts to sell your property, and allow you to learn from their (usually costly) mistakes before you make them on your own.
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[…] should be noted that a non-recourse loan can not be used towards renovation. If you see a fixer upper you like, know that this type of loan will not finance that […]
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