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The prospect of a home flip can be very attractive to investors looking to make a quick profit from real estate. Flipping a fixer-upper can often be done in less than six months, and the returns can serve as a great base for getting into larger, more long-term investments. They are also a great choice for beginner investors, as they help them get familiar with each step of the real estate investing process. Fixer-uppers do require a basic amount of real estate knowledge however, and it can be easy to make a mistake and watch your investment’s returns fizzle away. That’s why we’ve put together this list of tips to help make sure your next fixer-upper project turns into a financial win.
1. How to Identify the Right Fixer-Upper
You aren’t able to flip just any home that you come across. There are certain criteria that a property will need to fit in order to make for a good flip. The perfect fixer-upper will be a neglected property located in a great area that can be brought up to date with a minimal amount of effort. That means you should avoid homes that are in need of significant repair, like those with flood or foundational damage. Major repairs like those take long to complete and can eat up a good portion of your final return.
Location is also one of the most important factors with a fixer-upper, and for real estate in general. You will have a hard time selling your property if it’s in an area where nobody wants to live. Try to identify desirable neighborhoods in your chosen market when looking for properties. A high-quality neighborhood will have access to amenities (think shopping areas, restaurants, or transportation) and good schools to help attract family-oriented buyers. You will also want to consider the market at large and how healthy demand levels are in it, as well as any trends that might affect future demand.
2. Secure Financing for Your Investment Early
One of the best ways to set yourself up for success is by obtaining financing early in the investment process. Creating a good financial plan will not only help prevent you from overspending, but it will also help you plan renovations and keep your timeline on track. You have a few options to choose from when financing a home flip: traditional bank loans, private lending solutions, and hard money loans.
Traditional bank loans are a viable option, but it can sometimes be difficult to acquire a renovation loan from a bank as they may deem your project too risky, and loan timelines don’t always line up with the flipping process. Private loans simply refer to any private entity that is willing to lend you money to complete your project, often with more flexible loan terms and repayment options. Finally you have hard money loans, which are similar to private loans but backed by collateral such as the property being financed. Be sure to explore different financing options to find a loan that best fits your investment project’s needs.
3. Take Care with Renovations
In order to maximize your investment’s returns, you will need to choose the most cost-effective renovations for your fixer-upper. You should focus your attention on high traffic areas such as the kitchen, living room, and bathrooms, along with the exterior of the home to improve curb appeal. At the same time, you should take care that you are not imposing your personal style on the renovations. Instead, stick with updates that you know will have mass appeal, like neutral colors for paint and less eccentric furniture and decorations, if you plan on staging the property. Leave room for browsing buyers to imagine how they can customize the home in their own way.
You will also want to be careful to select the right contractor to perform the work. Be sure you are hiring a reliable professional with a proven track record of delivering quality work. Along with that, be sure to stay in touch with the contractor regularly so you can ensure the work is done properly, kept under budget, and you can deal with any delays that might show up right away.
4. How to Execute the Flip
There are some key steps you can take to help ensure you get the most out of the sale of your renovated property. First, you should look into staging rooms in the property to maximize their visual appeal to browsing buyers. You don’t have to go over the top, but some simple furniture items and decorations can help buyers envision the home’s potential. You should also hire a professional photographer to take great pictures that capture the home in the best light.
Once you have these things, you can create a stellar listing that highlights the property’s best features and gives visual examples of them. Be sure to include any important details about the property and the surrounding neighborhood in your listing as well. For pricing, take a look at comparable homes in the same area as your property to get an idea of the range you should be targeting. This will also give you a leg up in negotiations, since you’ll know what the property is really worth and what your hard limits are in terms of flexibility.
5. How to Maximize Your Profit
We want to end with some general advice for how to ensure you obtain the maximum amount of profit for your investment. It’s important that you take time to perform due diligence before starting your project. Understanding the price of homes in the market you’re investing in and the cost of repairs and renovations will help you more accurately estimate your returns, and whether the project is worth your time and money. It will also be crucial that you reduce holding costs during the renovation process, which can be done by completing the project quickly and efficiently. Be sure to stay on top of renovation work so that you can meet your target deadline and sell the property sooner.
Did you know you can also make use of tax benefits with a fixer-upper project? Many of the costs associated with a home flip can be deducted to further your return on investment. Namely loan interest, property taxes, building permit costs, and home improvement costs. Be sure to work with a tax professional to maximize your deductions and get the most out of your investment project.
RCN Capital
The easiest way to save on your next investment is to obtain financing from a real estate lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you are looking to finance a fix and flip project, RCN Capital has competitive loan options available.