Home flipping has always been a great way for ambitious investors to generate solid returns through real estate. Especially for those who like to be involved in their projects, since that sweat equity can translate into huge savings during the renovation stage. Brokers and lending partners also play a major role in the success of a fix and flip investment, however. Aside from providing investors with financing, brokers can offer their services as a strategic advisor, guiding their clients to make better acquisitions, manage risk, and implement smarter marketing efforts.
Continue reading as we cover the key techniques brokers and lending partners can use to help their clients find success in the fix and flip space.
Brokers serve as an investor’s best resource when it comes to ensuring their home flip is profitable. You have a finger on the pulse of the market, and can offer your expertise and connections to help clients find better deals and successfully close on them. For instance, you can connect investors with real estate agents, contractors, and tax professionals that help home flippers maximize their returns. This is a key competitive advantage that helps your clients win more often, especially in fast-moving markets. Not to mention, you can provide them with a variety of loan options, including short-term private loans specifically designed for home flipping which cover renovation costs. Using these loans, your clients won’t have to dip into their personal finances to fund upgrades and can further increase their capital leverage.
Every experienced investor knows that due diligence is the key difference between a very successful deal, and a not so profitable one. Assisting your clients in analyzing neighborhoods, properties, and greater trends within a market helps them be more confident that they are making a good investment in a specific area. You can also help them find comparable properties to get a more accurate picture of what their ARV might look like. Use the 70% rule to ensure that your client’s project is worth their time and effort. It states that for home flips, you should not pay more than 70% of the property’s after-repair value, minus expenses.
Of course, one of the services you offer as a lending partner is matching your clients with the right financing option. There are a number of programs you can recommend, including:
Speed and flexibility are often more important than interest rate in home flipping, because of the short-term nature of these projects. Your job as a broker is to lay out all the options to your clients, and highlight the pros and cons of each program before deciding on the right fit for their specific scenario.
Fix and flip projects move fast, and any time wasted often leads to higher holdings costs which eat into investment returns. Another way you can help your clients find success is by utilizing your real estate network to quickly get them in touch with trusted professionals in the space. Building a reliable network of contractors, inspectors, appraisers, and tax professionals allows you to refer clients to these experts when they need them. It also allows you to become a one-stop resource for your investor clients. Making the investment process simpler will surely be appreciated, and these clients will be more likely to return to you for repeat business.
Brokers also play a key role in advising their clients on investment strategy, helping them avoid risk and make smarter decisions. Taking time to educate your clients on the most common pitfalls will ensure that their fix and flip is profitable.
First is overestimating ARV; many first-time flippers tend to have very optimistic views of the ARV values on their projects. Be sure to use comparable properties in the same area as the home to get a more accurate estimate and help your clients avoid bad investments.
The next big pitfall to avoid is underestimating repair costs. There is almost always an unexpected cost that arises during the renovation phase, and for this reason, it’s a good idea to leave an extra 10% buffer in repair estimates to deal with these situations.
Finally, there is the matter of ignoring market shifts when the time comes to sell. If conditions have changed, the home will just sit on the market for longer, incurring more holding costs and impacting returns. In this case, it’s better to shift to a rental strategy, which allows an investor to recoup some of their initial costs and then sell the property when conditions are more favorable.
Brokers are a crucial part of an investor’s team in home flipping, not only for providing them with suitable financing, but also through offering your expertise to guide them to success. By assisting clients with due diligence, helping them manage and avoid risk, and connecting them with other real estate professionals, you become more than just a financing provider, but instead a lending partner they can rely on. Establishing lasting business relationships also helps you grow your own brokerage, ensuring that your loan pipeline continues to flow with deals as these clients undertake more projects. Home flippers often return to their lending partner for future financing opportunities, whether it be for bridge loans, refinancing, or shifting to a longer-term strategy. By offering value beyond the loan, you become their go-to investment partner, and it creates a scenario where you both win.
In order to maximize the returns on your clients’ investments, partner with a lender that can provide you with 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 and lending partners. If you are looking to offer fix and flip financing to your clients, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.