Home flipping is a very attractive prospect for those looking to break into the lucrative world of real estate. Flipping can provide investors with a substantial return which can serve as a launchpad for other, larger projects which require more capital. And when planned out properly, a fix and flip deal can be completed in a relatively short time period. Of course, there are some techniques you can utilize to help maximize investment’s return. In this piece, we cover everything you need to know about fix and flip investing along with some key strategies to help you have a profitable deal.
Let’s start with the basics of fix and flip investing. Home flipping involves acquiring older or neglected properties with the intention of renovating and reselling them, all within a short period of time. A healthy return for a home flip will fall in the 15-30% range, which allows you to net a good profit while also not being too risky of an investment. Investors are drawn to home flipping since it is not only lucrative, but you also have more control over every step of the investment process. Most investors aim to complete flips within a 6-month timeframe, but it is not uncommon for large projects to take up to a year.
Every successful real estate deal starts with an appropriate amount of research, and this is even more true with home flipping. When searching for the perfect flip, you goal is to select a discounted property that you can reasonably make repairs to, while also not investing in a property that is beyond saving. There is somewhat of a balancing act you need to achieve, but the best way to compare different properties is to calculate potential returns and see if they fall within the healthy range. Properties that have a return over 30% may be too risky and are better off avoided. You should also make sure to include holding costs like taxes, insurance, and utilities in your return calculations.
When it comes to identifying good properties, you should search for neglected houses that reside in great neighborhoods. This leaves room for your property’s value to grow until it matches the value of surrounding homes. Location and proximity to amenities are some of the most important factors in real estate, but identifying market trends can also help you find areas of opportunity. You should take a look at the data on population growth and the direction home pricing are trending in an area, as these stats can also help you find locations worth investing in.
There are a few options available for financing a fix and flip project. Traditional lenders like banks and credit unions do offer short-term loans, but they often have stringent requirements and a lengthy application process that is not ideal for home flipping. You will be better off securing financing from a private lender that operates in the real estate space. Not only do these loans offer fast approvals, but they can also provide funding for renovations unlike traditional mortgage loans. And, since the loans are asset based, your personal credit is less of a factor when determining loan approval. Be sure to compare all your available financing options so you can choose the one that best fits your investment scenario.
We also want to share some tips on how to make the most of the renovation process. Your initial focus should be on making updates to high traffic areas like the kitchen, living room, and bathrooms. These rooms tend to show their age the fastest, and the upgrades you make here will add maximum value to the property. There are also quick updates you can make like changing lighting fixtures and repainting the walls which will have a big impact on the look and feel of the home while costing relatively little. Be sure not to neglect curb appeal, since a home’s exterior is often the first thing potential buyers will see and you want to be sure to leave a lasting impression.
The final step of your investment project is to list the property for sale, and there are some marketing strategies you can make use of to speed the process. First, you will have to ensure you are pricing your home appropriately, so some market research is required to find comparable homes in the same area as yours. You can make use of staging and professional photography to craft a listing that stands out from the competition, and you might even fetch a better sale price for your efforts. Posting the listing in real estate groups on social media is another great way to get the word out about the property.
Once you have garnered enough attention, you can host an open house to entertain the serious buyers and begin offer negotiations. You should try to remain firm on pricing if possible, but you may have to be flexible on other conditions in order to close the deal. Don’t be afraid to lean heavily on your real estate agent in selling and negotiations to help you make the most of the process.
Before you jump into your next fix and flip investment, it will be beneficial to understand all the risks associated with a project like this. Many of the risks surrounding your ability to complete the project in a timely manner and sell it for a good price can be mitigated through research and planning. Due diligence is often the key factor that determines success with a real estate investment.
Besides this, you can implement some contingencies to help keep your investment profitable. When calculating your budget, it will be beneficial to leave a buffer to help cover unexpected costs that tend to show up in large projects like these. The rule of thumb is an extra 10% of the total budget. You will also want to have a backup exit strategy in case selling the property doesn’t pan out. Renting a home for a period of time allows you to pay the holding costs and can even help you recover some of your initial investment.
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.