By Noah Brocious – President/RI/Mortgage Loan Originator – House flipping has gotten a lot of attention in recent years with television shows and tales of get-rich-quick success. However, as lucrative as fix and flip can be, there are also a lot of risks, which is why it’s essential that you do your research before taking the leap into this fast-paced industry.
Seven Steps to a Successful Home Flip!
So what do you need to know if you’re beginning flipping? We’ve created this seven-step list to give you the rundown.
1. Evaluate the Risk
Whether you’re putting in your own money or getting financing to fix and flip homes, there is a significant risk when breaking into the business. Like any big investment, you’ll have to hope for the best and plan for the worst. What happens if repair costs go above your budget? What if you struggle to sell the home? You should have answers to these questions before you make the first move.
The best way to evaluate the risk, of course, is to do your research. For example, if you’re looking to purchase property in Arizona, take a look at past and current markets and future forecasts.
2. Make a Plan
Now that you have the lay of the land, it’s time to create a business plan. This should include a budget and project timeline. While you may not be able to fill in specifics, your previous research should allow you to make estimates.
This business plan is a guide to your first-time fix and flip. When you’re starting out, it can be tempting to bite off more than you can chew; with a solid plan, you can ensure that you’re not taking unnecessary risks. Additionally, a business plan can be useful when applying for financing, as some lenders will want to see how you intend to spend the funds.
3. Find a Realtor
Since this is your first time looking for an investment property, you’ll need some help. Realtors have large networks of buyers, sellers, and other real estate professionals, not only in the immediate area but in larger regions such as the southwestern U.S. These networks are invaluable when you’re entering the business. As you create a niche for yourself, you’ll be able to develop these connections on your own, but for now, you can rely on your realtor’s.
In addition to helping you find the perfect property, realtors are also skilled negotiators. This comes in handy during the closing, especially if you’ve never been through the process before. Again, these are skills you can develop in time, but as you buy your first fix and flip homes, it’s good to work with someone with experience.
4. Get Financing
One of the most important steps in flipping a house is getting the right financing. While banks offer traditional mortgages to purchase homes, this may not work for the fast-faced investment property industry. Typically, a mortgage can take more than a month to process, which may mean missing out on the perfect lot.
Instead, you should look at hard money lenders. These companies specifically offer fast cash with less red tape so you can close quickly. In fact, many offer loans specifically designed for the fix and flip process. Additionally, this type of financing is short-term, usually two years or less. Once you sell your renovated house, you can pay the loan off with no penalties.
5. Choose a Home
Choosing your first investment property may be the most difficult part of this process, but with an experienced realtor to assist, you’re sure to find a house that fits your purposes. This is where having financing can give you an advantage, as buyers may be willing to let their property go for a lower price if it means getting paid in cash.
6. Hire a Contractor
Once you have the property in your name, it’s time to hire a contractor for renovations. It’s essential that you find a certified contractor with a good reputation to avoid building code issues and potential scams.
You’ll also want to stick as closely as possible to the budget and timeline you’ve created. Of course, you may have adjusted this during the financing process once you figured out the property’s cost and how much money you qualified for.
7. Sell Your Rehabbed Property
The last step is to sell or rent your renovated property. Once again, your realtor can help you out by finding buyers or renters, as well as determining the appropriate listing price for the house. It’s critical that you list at a price that buyers will find reasons to ensure the property doesn’t languish on the market.
Contact an Investment Lender Today
Are you a property investor based in Arizona or Colorado? Capital Fund 1 provides fast financing for purchasing, renovating, and building investment real estate. For more information, contact us online or give us a call at (480) 889-6100.
Photo Credit: Poungsaed-Studio