For those just beginning with house flipping, you may have realized that there is a lot to learn. Contrary to what is often seen on TV, it is not a simple and straightforward process. Nonetheless, it is possible to be successful with house flipping if you take the time to learn how to do it correctly. Additionally, there are methods to help minimize the learning curve and lessen the risks. This blog post will give those new to house flipping some tips and mistakes to avoid.
How do Fix and Flips Work?
Those looking to get into house flipping should focus on purchasing distressed properties, making necessary improvements, and reselling them for a profit. To do this, it's important to seek out properties that are undervalued, as they often require a great deal of work. After investing in renovations that increase the resale value, the property should then be listed and marketed in order to attract potential buyers.
Basic Steps to Fix and Flips
In order to increase your chances of success and reduce potential financial risk when flipping houses, it is essential to become familiar with the steps below. Though this will get you in the door, success in this industry requires extensive research and hustle. We trust that you'll use these steps as a launchpad for future knowledge.
Real Estate is Local
Prior to getting started on your real estate investment journey, it’s essential to properly research the market and choose an appropriate location. It would be beneficial to collaborate with a real estate agent, who can provide guidance throughout the home-buying process. After selecting a property, it is recommended to hire a general contractor to evaluate the residence. This will enable you to develop an estimate of the necessary renovation work and whether the house is within your budget.
Know Your Strengths and Weaknesses
Having knowledge of construction, real estate, and design is essential for success as a house flipper, though if you don't possess these skills yourself, it is important to know how to find the professionals who do. Some investors are excellent at the contracting portion of a project. Others are business masterminds who's strategies are foolproof. Others still are excellent project managers who can get any deal across the finish line. Know where your strengths lie, and where you might fall short. Being honest with yourself is the only sure way to avoid pitfalls associated with hubris and overconfidence.
Live by the 70% Rule
The 70% Rule is a widely used maxim among real estate investors. According to the rule, one should only pay 70% of a property's After-Repair Value (ARV) minus necessary repairs. The ARV is the estimated value of a home after it has been fully renovated.
For instance, if a home has an ARV of $150,000 and requires $20,000 in repairs, 70% of the ARV would be $105,000. Subtracting the repairs, the total cost of the purchase of the home should not exceed $85,000. This ensures that you leave enough room for transaction fees, carrying costs, risk mitigation, and most importantly, profit!
Most beginning investors don't have the cash on hand to finance their real estate deals, but experienced investors don't necessarily do either. Creative and varied financing options are essential to building a career in this industry. Though there are many sources for funding, not every one will make sense for your specific project.
Financing from friends or family may seem simple, but it can often be the most complex financing strategy of them all. This is due to unrealistic expectations and strained relationships.
Traditional institutions may not lend to distressed assets. And even if they do, their terms may not be conducive to getting a deal done.
We may be partial, but hard money lending is an excellent tool for beginning real estate investors. Our team at The Hard Money Co. brings expertise to the table when we partner with you to move your investment across the finish line. Without the need for credit checks, income verification, or property appraisals, we're able to close quickly and remove barriers that other sources might not be able to avoid.
Find Your Property
Identifying the right property to flip a house is a tricky task. Not only is the purchase price important, but so is the potential resale value in order to guarantee the largest profit. A real estate agent and contractor should be consulted to determine the amount of work that is necessary. When a great deal is found, there is likely a lot of competition for it, so it is essential to know the maximum amount to pay and still remain profitable. Finally, an offer can be made and the house closed on.
Do the Work!
For those new to house flipping and working on a tight budget, sweat equity can be a great way to save money and still get the job done. This includes investing their time and effort into researching potential properties, making repairs, and finding ways to increase the value of the property. By investing their own sweat equity, they can get the house flipping project done without breaking the bank.
… Or Build a Team.
If you aren't a savvy contractor yourself, real estate investing can still be accessible to you. Hiring general or specialty contractors can expedite your project and ensure the quality of work is up to standard. While this can eat into your profits, the time and energy savings may be well worth it.
Sell the Renovated Property
After the repairs are completed, it is essential to act quickly to resell the house. The longer the residence is on the market, the less money you’ll make, so time is of the utmost importance. To ensure you secure a great price for the property, consult a real estate agent to list it in the MLS database. Real estate agents are knowledgeable about the current market and can assist you in determining the ideal resale value. With a fast turnaround, you should anticipate receiving offers soon.
House flipping can be a profitable venture if planned meticulously and the financials are taken into account. Overnight success is rarely achieved, and mistakes may be inevitable on the journey. To smoothen the process, it is ideal to work with a credible real estate agent and an experienced general contractor. They can offer insight into the local market and help assess the property's condition. In addition, it is important to have the right financing in place to make the house-flipping process easier. For those who are interested the first step is applying with The Hard Money Co. today.