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When It’s Time for Your Next Flip, Keep These Tips in Mind:
When I was looking for a home to purchase, I was told by pretty much everyone I know, "Don't buy something that needs a lot of work."
This mindset followed me through the beginning of my investment journey, until I realized that flipping is hot right now and investors are reaping the benefits!
So what the heck is House flipping? It is when a real estate investor buys a property and holds onto it for a short time before selling it (the flip part) in the hopes of making a profit. Instead of buying a home to live in, the investor is buying a home as a real estate investment, fixing it up and then reselling at a hight rate and making a profit.
Now listen, sometimes, flipping a house includes A LOT of repairs or renovations. Sometimes its just a little lipstick . Other times it’s owning the property until it can be sold for more than the purchase price plus the after-repair value (ARV).
The goal of flipping is to buy low and sell high, invest sweat equity to cut costs, and earn a profit in a relatively short amount of time — usually within months or a year.
Houses in areas with rising home values are ripe for flipping, especially when investors can buy run-down homes at a steep discount and then renovate them to today’s tastes. So, a savvy fix-and-flip investor must be prepared in order to capitalize on the real estate opportunities that exist in the market.
Based on our experience and our investors’ expertise, here are four of the most important basics that fix-and-flip investors should remember, whether it’s their first flip or their 500th.
Tip #1 - Understand Fix-and-Flip Financing
Fix-and-flip financing refers to the financing used to purchase and renovate a property that is in need of repair, with the intention of reselling it for a profit. This type of financing is popular among real estate investors who specialize in flipping properties.
Whether it’s a light flip that requires mainly aesthetic changes or a heavy rehab with major upgrades, a fix-and-flip loan gives you access to the capital you need.
Most fix-and-flip loans differ from traditional mortgages in two ways. First, they are short-term to cover the amount of time it takes to completely rehab and sell the property.
Of course, with flipping a house, you need to run the numbers based on loan terms like purchase price, origination fee, and interest rate. Unlike with a primary residence, you need to make sure these costs plus rehab leave money for a healthy profit. It’s also important to know how construction draws work – how long they take, are you paying interest on undrawn construction funds, and more – so you can manage cash flow throughout the life of the loan. The best private lenders, like Lima One, will ensure the numbers and the process work before extending you a loan.
There are several options for financing a fix-and-flip project, each with its own set of pros and cons. The most common types of fix-and-flip financing are:
Hard money loans: These are short-term loans that are secured by the property being renovated. They are typically easier to obtain than traditional loans, but come with higher interest rates.
Private money loans: These are loans that are provided by private individuals or companies, rather than a traditional lender like a bank. They can be a good option for investors who have a good track record and a strong relationship with their private lender.
Traditional loans: These are long-term loans that are provided by banks and other financial institutions. They can be a good option for investors who have good credit and a low debt-to-income ratio, but may require a higher down payment and have stricter underwriting guidelines.
Home equity loans: These are loans that are secured by the equity in an investor's primary residence. They can be a good option for investors who have built up equity in their home and want to use it to fund a fix-and-flip project.
Partner financing: This refers to the practice of partnering with another investor or group of investors to finance a fix-and-flip project. This can be a good option for investors who don't have the necessary funds to finance a project on their own.
When considering fix-and-flip financing, it's important to carefully evaluate the costs and terms of each option, as well as the potential risks and rewards of the project. It's also a good idea to work with a financial professional who can help you make informed decisions about which financing option is best for you.
Tip #2 - Make it Personal
So you love the potential fixer upper you just looked at, but before you buy it, the question is, will your potential buyer?
Home shoppers aren’t just looking for a home that meets their needs. Families are looking for a neighbourhood with access to great schools. Retirees are looking for more serenity. A young single may want night life. Before you invest in a property, know what the surrounding area looks and feels like. Get a feel for what it will look like in 10 years. Know what kind of people are moving into the neighbourhood, and make sure your project fits their desires and budgets. This takes more than a desktop appraisal view of an area—especially in times when home prices are volatile.
Location doesn’t just determine where you buy—it also impacts what rehab you do. You’ll have trouble selling a home with luxury-level bathrooms and kitchens in a neighbourhood where most houses sell for market value. Keep your rehab expectations (and budget) in line so that the final sales price befits the neighbourhood. This will give your investment the best chance of success
Feel free to include personal details and examples. The more relatable you or your website is, the more you connect with your readers.
Tip #3 - Know your Numbers!
Before making an offer on a property, it's crucial to carefully assess the costs involved in the renovation. This includes materials, labor, and any other expenses you may incur. It's also important to have a good idea of how long the renovation will take, as the longer it takes, the more you'll have to pay in holding costs like insurance and property taxes.
Tip #4 - Get The Right Team
A successful fix-and-flip project requires a team of professionals, including a real estate agent, a contractor, and possibly a lawyer or accountant. It's important to work with people you trust and who have a track record of success.
Tip #5 - Manage your Risk
Flipping houses carries inherent risks, such as the possibility of cost overruns, delays, or unexpected problems with the property. It's important to have a contingency plan in place to manage these risks and protect your investment. This could include having a financial cushion to cover unexpected costs or carrying out thorough inspections to identify any potential issues before you make an offer on a property.
In conclusion, fix-and-flip investing can be a lucrative way to make a profit in the real estate market
By thoroughly researching the market, knowing your numbers, assembling a team of professionals, and managing your risk, you can increase your chances of success. If you're considering entering the fix-and-flip market, now is the time to take action. Don't wait any longer to start turning your real estate dreams into a reality. Start researching properties and consulting with professionals to begin your journey as a successful fix-and-flip investor. Join our 7 Figure Real Estate Investing Facebook Group for everything real estate
Much Love
Sara
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