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Investing in real estate can be a great way to generate returns and build wealth. One of the most popular methods of real estate investing is flipping, where you buy an older or low-cost home and renovate it before re-selling for a profit. Flipping is great because it can provide you with a sizeable return in a short period of time, which can also serve as a launchpad for other investments. If you've never flipped a property before though, you'll want to make sure that you're prepared for what's to come. These five tips will give you a head start on flipping your first property:
Tip #1: Have a plan
You should have a clear, step-by-step plan for a flip that includes how long it will take, but also keep in mind that this isn’t something that can be done overnight. If you don't have enough time or money for the project, then don't do it! You will only end up losing money on this venture if you can’t dedicate the proper time or effort. Be conservative with your profit estimates, and leave some room in your budget for unexpected costs that may arise. This helps ensure that your flip will actually end up being profitable, and can prevent you from moving forward on a simply bad deal.
Tip #2: Get your financing in order
It's important to get your financing in order before you even start looking for a house to buy. There are several options when it comes to financing your flip, ranging from traditional mortgage lenders to private ones. Traditional lenders like a bank are often great for owner-occupied properties, but they may not be willing to give you a loan for a fix and flip investment. They may view your investment as too risky when compared to the low-risk, 30-year mortgage loans that they typically issue.
The alternative then, is to turn to a private lender. These types of companies specialize in helping people buy homes without using traditional methods like banks, but at the cost of higher interest rates. The benefit is that these lenders will often have experience in the flipping space, and can close on a loan much quicker than traditional lenders can. They may also be able to provide you with resources and connections to professionals that can help ensure your project is successful.
Tip #3: Work with the right professionals
One thing that can make a huge difference with your flip is finding the right professionals. First and foremost you should get a good real estate agent, as well as a trusted contractor, and a tax professional. These are all people who can help you save money in the long run. A great real estate agent will be familiar with your area, and they’ll be able to sell your home for a good price so that your efforts don’t go to waste. A good contractor may be more costly up front, but they will save you thousands of dollars in repairs or replacements down the line. Finally, a tax professional will ensure you’re making the most of your deductions so that you can keep more of your hard-earned money.
Tip #4: Don’t forget about holding costs
As the common saying goes “Time is money”, and this couldn’t prove to be more true than in real estate. When you're flipping a property, it's easy to get so wrapped up in the excitement of making money that you forget about all the costs associated with the home. There isn’t just mortgage payments that need to be made, but also taxes, insurance, HOA fees, utilities, and maintenance costs. The longer you hold on to a flip, the more you will be paying in these “holding costs” which can totally eliminate your profit margin. Ideally, the process of flipping a home from start to finish should take less than 6 months.
Tip #5: Know when to call it quits
A common pitfall for many first-time investors is becoming emotionally attached to a deal which actually turns out to be a financial mistake. There’s a saying that goes “You can’t rehab your way out of a bad deal”. Some properties just don’t have any inherent profitability, and once you’ve figured that out, any more time and resources you invest will just end up being wasted. It’s better to cut your losses and move on to the next, potentially profitable venture than to try to save a sinking boat. If you run into such a scenario, take the lessons you learn from it and use them to make sure your next deal ends up being a good one.
Bonus tip: Work with RCN Capital
Do you have a real estate project you would like to obtain financing for? RCN Capital lends to real estate professionals, commercial contractors & developers across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you’re looking to acquire financing for a home flip, RCN Capital has competitive loan options available.Connect with us todayto discuss your next real estate investment.