By Noah Brocious – President/RI/Mortgage Loan Originator – TV shows make the most difficult remodel look like a walk in the park. The truth is that buying a home, fixing it up, and reselling it is a little more complicated. You can absolutely have amazing results as a first-time house flipper, but you need to make smart decisions when it comes to financing. Maximize your profits with these 10 fix and flip tips from the pros:
1. Apply for Custom Fix and Flip Loans
There are a lot of loans that could technically work for a fix and flip project, but trying to make a square peg fit in a round hole is more trouble than it’s worth. It’s smarter to work with a lender that has experience specifically with fix and flip loans. At Capital Fund 1, we’ve been helping new house flippers in Colorado, Arizona, Texas, and Oregon since the very beginning.
2. Look for the Highest Profit Potential
Don’t think just in terms of the purchase price. Look at the amount of profit a specific property is likely to net you. This number depends on the local market. An ultra-cheap home may look good on paper, but will it sell high enough? Factors beyond the home itself, such as neighborhood and safety, can factor into the answer.
3. Sell Fast
One of the most common mistakes first-time house flippers make is waiting too long to sell. They often do this because they have a dream of the huge amount of profits they deserve to make. Sometimes, it’s more profitable to accept a lower offer instead of paying property taxes, utilities, interest, and other costs for months.
4. Request a Home Inspection
A deal that’s too good to be true sometimes is. Or it can be a legitimately great deal. The only way to find out for sure is to always request a home inspection. This one thing can save your life financially, giving you a head’s up for important structural issues or moisture problems.
5. Plan on Unexpected Problems
Murphy’s Law — that if something can go wrong, it will — always seems to love house flippers. The older a home is, the more likely it is for issues to be lying under the surface. That means you want to budget enough money in your loan to cover plumbing costs, electrical costs, structural issues, and design flaws.
6. Triple Your Budget
Many first-time house flippers say their initial budget was way off. Plan on spending at least three times what you think you will. Think we’re exaggerating? Many pros actually say to take your original budget and multiply it by five!
7. Work With Professionals You Trust
Unless you’re a certified plumber, don’t try to tackle plumbing yourself. The same thing goes with remodeling or electrical work. Professionals know local building codes in different parts of Colorado, Texas, Arizona, and Oregon. Choose contractors that have a great reputation with local real estate agents.
8. Factor in Taxes
Tax laws around house flipping usually treat you as a self-employed professional. This can make taxes a little more complicated, including deductions. Some deductions can save you thousands of dollars, so it’s worth talking to a local tax professional at the beginning of your project.
9. Don’t Fall in Love
We get it. It’s exciting to buy your first fix and flip home. This business can be a great way to make money. To turn a great profit, however, you need to make decisions with a cool head. Before choosing luxury details during remodels, make sure the potential profits are worth your investment of time and money.
10. Don’t Begin With Major Renovations
This is one of the biggest tips experienced house flippers give newcomers. Homes that are broken down are a lot more complicated than ones that only require minor repairs. More things can go wrong. Tackle these types of homes after you have a few successful projects under your belt. See our feature on RedFin.com to learn more about focusing on minor repairs first: https://www.redfin.com/blog/new-house-checklist/
Step-by-Step Guide to Buying Your First Property
What should you do and when? Follow this basic order to make buying a home for the first time as smooth as possible:
- Plan your budget
- Contact us to learn about your financing options
- Look for a home that fits your budget
- Qualify for fix and flip loans
- Make an offer
- Set the end date for your project
- Hire needed contractors
- Sell the home
- Profit
Getting financing for flipping a house doesn’t take long when you work with us, but it’s always a good idea to know how much money you qualify for ahead of time. That way you can decide a soft cap and a hard cap on your total project budget.
Everything You Need To Know About Fix and Flip Loans
The right investment loans make the entire process of flipping much easier. If this is your first time applying for fix and flip loans, here are some terms you’ll want to know about:
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Acquisition loans:
- This type of loan only covers the costs related to purchasing the property. If you want to close quickly on a property that is in good shape, acquisition loans are a great choice for a fast turnaround.
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Remodeling loans:
- Similar to working capital loans, this type of financing gives you a large amount of funds that you can spend however you need. The advantage of remodeling loans is their flexibility. They help you buy everything from construction materials to interior décor.
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Hard money loans:
- Also known as bridge loans, hard money loans use collateral to help you qualify for significant financing. Asset-based lending is a great fit for house flippers because it only takes around 24 hours to get qualified, unlike mortgages that can take months.
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Loan-to-value ratio:
- This is a term you’ll run across a lot in fix and flip loans. The LTV ratio of a loan tells you what amount of the home’s purchase price the loan will cover. For example, an LTV of 75% for a home worth $100,000 gives you $75,000. You would still need some money set aside for a down payment.
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After repair value:
- Real estate agents may help you calculate the ARV of a home. This is the estimated value of the property after any renovations or repairs you plan on making. It’s often used when calculating the size of rehab loans or lines of credit.
Having plenty of capital lets you buy the property you want, make the fixes it needs, and adapt to unexpected problems quickly. The best fix and flip loans for a project depend on your budget and goals.
Fix and Flip Financing Experts With the Best Investment Loans
One of the most valuable tips for first-time house flippers is to gain experience at every opportunity. You don’t have to be a professional plumber, tax expert, builder, or loan pro to pick up skills that can help you profit more from each successive project. Don’t try to “lone wolf” it. Experts can save you a lot of time, money, and headaches by helping you make the best decisions.
At Capital Fund 1, we’ve helped hundreds of real estate businesses and house flippers get the best investment loans. Our fix and flip loans are easy to use and easy to qualify for. Apply for financing in Arizona, Colorado, West Texas, and Oregon right away.
You don’t need perfect credit. You just need a dream and some business savvy. We help with everything else. You can reach out to our Phoenix office at (480) 795-3422 where we can get you in contact with the right people for your project.
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