There are many ways to invest in real estate, but for beginners one of the best strategies for making a return is through home flipping. Flipping homes can be a very lucrative endeavor and the returns may be used as a launchpad for other, longer-term investments. However, in order to have a successful flip there are some key tips you will need to know. Along with choosing the right home and the right renovations to perform, you should try to practice due diligence in all steps of the project. Continue reading for our beginner’s guide on all the basic aspects of home flipping so you can find success with your next investment.
Every successful real estate deal starts with an appropriate amount of time dedicated to research and planning. You should start by looking at the data on a number of different real estate markets, since not every location will be ideal for a fix and flip investment. Things like population growth and the direction housing prices are trending can tell you whether or not a market will be lucrative. This stage is also where you should establish your budget, and set realistic goals surrounding profit expectations. When determining your budget, be sure to include acquisition and renovation costs in your total, and leave a reasonable amount for covering holding costs while you take time to offload the property.
Finding the Right Property
Once you have the basics out of the way, you can begin searching for a good property. You will want to work closely with your real estate agent to find older, distressed properties that can be repaired relatively quickly and at a low cost. These are the homes that will have the highest potential for improvement, and potential returns. Ideally the property should be located in a great neighborhood, where it can grow to match the value of higher cost homes once renovations are completed. Also, be sure to order a proper home inspection to uncover any costly hidden issues, like foundation problems or flood damage that can be very costly to repair.
Financing Your Flip
You have a few options to choose from when it comes to financing your fix and flip project. Traditional mortgages are always an option, but they may not be the best fit for a flip since they tend to have stringent criteria and longer loan periods. If the property is in too rough of a condition, you may have trouble getting approved for financing from a bank at all. Private or hard money loans are often better utilized for flipping, as they have less stringent criteria, provide funds for renovations on top of acquisitions, and have customizable loan terms that can be tailored to your specific deal.
The Renovation Process
The way you handle the renovation stage can have a big impact on your investment’s return. First, you should look to hire a good contractor, ideally one that you have vetted with a history of delivering quality work. Your focus should be on performing cost-effective upgrades to areas that will add the most value to the home; think of the kitchen, bathrooms, and exterior to maximize curb appeal. Be sure to stay involved in the renovation process to ensure work gets done in a proper manner, and so you can quickly work around any delays that may come up.
Marketing and Selling
There are a few tips we can provide on making the most of the property sale once renovations are completed. You will need to work with your real estate agent to develop a good marketing strategy to help increase demand and boost your final sale price. Consider hiring a professional photographer to take excellent photos, and combine these with a detailed property listing to capture the attention of browsing homebuyers. Be sure to focus on any unique features the home has that will make it stand out from other listings.
If you are struggling to determine a fair price, you can take a look at comparable sales in the same area as your property, but also make sure to leave enough of a margin to make the deal profitable. During the sales process, you can expect to go through a negotiation process with any potential buyers. You should be comfortable with negotiations, as there will normally be a back and forth until both parties can come to a reasonable agreement. Be firm with pricing, but be reasonable when it comes to accommodating other requests, especially if it helps facilitate the sale.
Risks and Challenges
Finally, you should fully understand all of the risks associated with a fix and flip investment so you can better know how to avoid or mitigate them. Many of these risks can be avoided by dedicating an appropriate amount of due diligence to the deal. For example, choosing a bad market or failing to recognize market trends. Some common mistakes beginners make are overestimating the ARV (after-repair value) of their deal, and not leaving a contingency fund in their budget to cover unexpected costs. Be sure that you are doing research before making any major financial decisions, and don’t be afraid to rely on other real estate professionals to help you find success.
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 home flip, RCN Capital has competitive loan options available.