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Every real estate investor knows that home flipping can be an incredibly lucrative strategy, and a great path for those looking to get started in the world of real estate. A home flip can be completed in less than six months, and they offer substantial returns that can be the perfect launchpad for other, larger investments. They also help beginners get familiar with every step of the real estate investments process, including the planning and renovation of properties. However, there’s a lot that goes into a successful home flip, and having the knowledge to navigate through the process is crucial. That’s why we’ve put together a guide to teach you everything you’ll need to know about fix & flip investing for your next real estate venture.
Understanding the Fix & Flip Market
You can’t expect to have a successful investment without a fair share of planning. That’s why it’s so important that you dedicate time to market research before diving into a real estate project. Identifying trending or rapidly growing markets will allow you to tap in to the heightened demand and get a better return on investment. Take a look at key statistics such as population growth, real estate pricing, and the overall health of the job market to help you identify these areas. Just make sure you are utilizing trusted sources like REiDEAL MASTER or ATTOM Data to obtain accurate statistics on real estate markets.
Finding the Right Property
There are certain properties that fit the bill for flipping better than others. Mainly, you will want to seek out neglected or older properties that are located in desirable areas. This is the ideal scenario because the property’s value can rise to match that of surrounding homes. However, you will need to be careful not to invest in a property beyond saving, or in other words, a money pit. You should order a professional property inspection to get an idea of how much work any given home will need, and avoid those that have major issues (like structural or flood damage).
Financing Your Fix & Flip
It will also be crucial that you have financing in place for your home flip. You have a few options to choose from, so you should compare various programs to find the right fit for your project. Traditional mortgages can work for flipping, but they do not provide additional funds to cover renovations, and the 15 or 30-year term doesn’t make much sense for a home flip. Alternatively, you can seek out a private loan from an investor or company that operates in the real estate/home flipping space. These loans often range from 6 to 12 months in duration, while also providing funds to cover renovation costs, making them perfect for flipping. They do come with different terms from traditional loans however, such as being secured by collateral which is typically the property being financed.
Planning Renovations
Before you start making renovations, it’s important that you create a good plan and budget for the changes you’re going to make. Start by creating a list that breaks down each of the renovations by room, and then a budget with line items for each piece of work, along with their expected completion dates. Not only will this help you keep costs down, but it will also help keep your project on schedule and allow you to avoid any unnecessary holding costs. It can also be a good idea to create a contingency fund for any unexpected costs that tend to arise during the renovation stage. If you’re struggling to determine an amount, a good rule of thumb is 10% of your initial budget estimates.
Marketing and Selling Your Flip
The final stage of your investment involves marketing the property in preparation for a sale. This will require you to create a stellar listing for the property that highlights all its best features. It will help if you have a good understanding of the property’s market for both pricing and the type of buyer you will want to target. For example, a home in a suburban area will sell quicker if it has more bedrooms, a decent sized yard, and flexible areas that can be converted into playrooms or extra storage. Highlighting these features in your listing will help catch the attention of browsing buyers.
You should also consider hiring a professional photographer to help capture the home and all its features in the best light. You can even take this a step further by staging the property to showcase its potential. Staged properties tend to sell faster and for a higher price than their non-staged counterparts. Plus, in the modern age it’s possible to virtually stage your photos at a fraction of the cost of actually furnishing the rooms.
Common Pitfalls and How to Avoid Them
We want to leave you with some additional tips on how to avoid the most common pitfalls investors run into when flipping homes. We’ve already mentioned a few, such as neglecting market research and not having a contingency fund, but there are still some things you will need to watch out for. In the renovation stage, it’s important that you don’t over-improve the property and make changes that don’t add any real value to the property’s final sale price. You will also need to remove your personal tastes from the project, since you aren’t going to be the one living in the home. Instead, choose upgrades that you know will have mass appeal, and stick to neutral or muted tones when picking color options.
If you are working with a general contractor during renovations, it will help to stay communicative with them throughout the entire process. This way, you can address any issues or delays that might affect your timeline and you can help keep the project on track. Time is very important with a fix & flip, since the longer you take to sell the home the more you’ll be paying in holding costs like utilities and mortgage interest. Stay involved in the project and try to stick to your initial plans to keep costs down and have a successful fix & flip investment.
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.