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With the recent interest rate hikes affecting the real estate industry, you can expect more people to start flipping homes rather than holding them for long-term rental income. It should come as no surprise since home flipping is a tried and true method for investors looking to generate returns through real estate. You have plenty of options to choose from when you decide to flip a home, but not every property makes a good flip. There will be specific markets which are more profitable, and certain types of homes you will want to look for. In this article, we cover some tips to consider if you’re planning to invest in a fix and flip property.
Tip #1: Choose a great neighborhood
When you’re deciding on a house to flip, you will have to make sure the property is in a great neighborhood. If your property is in an unsafe area, you will have a hard time finding a buyer. A home that’s close to amenities like good schools, parks, and shopping areas will also be in high demand.
The properties that make for the best home flips are those in need of some light rehab and minor updates. With flipping, it’s better to purchase the worst home in a great neighborhood rather than the best home in a bad one. This way, your property will have room to grow and match the value of surrounding homes once renovations are completed.
Tip #2: Don’t overpay
Overpaying for a property can eliminate your profit margins before you even start renovations. The best way to make sure a flip will be profitable is to crunch the numbers. You can use the 70% rule to identify homes that will be worth flipping. This rule states that you should not pay more than 70% of a home’s after-repair value (minus repair costs) when making a purchase. Using this rule helps ensure there will be enough of a profit margin to make the deal worthwhile.
Tip #3: Have a timeline and stick to it
Before you close on a fix and flip home, you should have a timeline of roughly how long the project will take from start to finish. Break the process down into multiple steps, each with their own specific date of completion. This helps you stay on track, because if something comes up, you’ll know exactly how far behind the project may be. Remember that time is money, and the longer you take to flip the property the more you will be paying in monthly holding costs.
Tip #4: Leave a buffer in your budget
You will definitely want to calculate the amount of funding it will take to complete the renovation of a property. But you should also leave a buffer in your budget to cover unexpected costs or situations that may arise. A good rule of thumb is to leave at least an extra 10% to cover these extra costs. If the project is still profitable even with this extra buffer, then you’ll know the deal makes financial sense and is worth investing in.
Tip #5: Make sure your upgrades have impact
One mistake you want to avoid when you begin renovating your property is choosing upgrades based on your personal tastes. Instead, you should go for low cost upgrades that have a big impact, like changing out old lighting fixtures, and new paint for the rooms. Another good idea is to focus your attention on key areas like the kitchen and bathrooms. Don’t neglect curb appeal either. A fresh coat of paint can go a long way, as will taking care of the lawn and landscaping. The important thing is to be careful not to over-improve the home, and have it fall out of the price range for most buyers.
Tip #6: Build sweat equity
When you do begin the renovation process, you should try to perform as many of the upgrades as possible yourself. The gains you make from this time spent performing renovations are referred to as sweat equity. There will be certain projects you should leave to professionals, but if you are handy or able to paint, you can save heaps on renovation costs and take your gains even further.
Tip #7: Work with trusted professionals
Having a team of real estate professionals in your corner can be a huge advantage to you. First and foremost, you should work with a qualified real estate agent. They will be able to help you find buyers and can also help you find a home worth flipping. A good lender can get you the best rates and also provide resources to help you with your project. You should also look to hire contractors who you know will be able to complete work properly and in a timely manner. You can ask friends and family for recommendations, and you can always ask a contractor for references of past work as well.
Tip #8: Get a loan with the best leverages and rates
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 an investor looking to finance a home flip, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.