There are some dos and don’ts for investors who are looking to flip houses, and some of these can be real dealbreakers. After all, flipping houses is a business that requires a strategic approach to make good decisions. A savvy investor knows the questions to expect when trying to obtain funding from lenders, so here’s how you should present your fix and flip deal to investors.
Signs a Property is Worth Flipping
Not all fix and flip properties are alike; many investors set guidelines when scoping out a fix and flip investment that matches their strategy. Here are some clear signs that tells an investor a property is worth investing into:
- the house is priced below market value
- property records are suitable
- property follows 70% rule
- repairs are minor
Using these common metrics, investors can successfully weed out high-risk properties that do not fit their investing strategy. Investors should avoid properties that are:
- have high running costs
- in need of major repairs
Once you’ve found a fix and flip investment that suits your investing needs, it’s now time to present your deal to qualifying investors. By following these tips, you’re guaranteed to score the deal.
How to Present Your Fix and Flip Deal
Know Your Strategy
Lenders will be evaluating your strategy when deciding to close on your deal, meaning you should aim to know your strategy inside and out to lower your risk in the market and make your deal more guaranteed. Every investor’s strategy is unique to their income needs, risk exposure, and time spent in the market. Understanding your risks as well as having an exit strategy will give lenders the confidence they need to give you the deal.
Research Your Lender
Before pitching your deal to a local hard money investor, you should do your research and be aware of the lender’s specific qualifications. Every lender is different regarding their qualifications for hard money loans; some lenders may completely disregard your credit score while others take it into account. Before pitching your deal to lenders, you should know exactly what you are walking into regarding loan terms, qualifications, and interest rates.
Have Data Prepared
For an investor ready to present their fix and flip deal to investors, the more data you have backing up your strategic decision the better. A thorough investor will have data regarding both macro and microeconomic market conditions before presenting their deal to an investor or lender.
Think About Your ARV
Your after-repair value, better known as ARV, is going to be a major factor in the finalization of your deal by lenders. Typically, investors that are strategic with fix and flips look for properties with the potential to return a high after-repair value. When estimating your repair budget and your ARV, you should present the information to lenders so they can determine the amount of capital it will take to complete your project, and the overall return once it’s over. Lenders are more likely to finalize a deal with a high ARV considering if you default on the loan it is backed by the collateral of the property.
Compare Properties in the Neighborhood
A good way to finalize key data points in your strategy and make your deal seem approachable to lenders is by comparing properties in the surrounding neighborhood of your fix and flip. By comparing properties to your fix and flip, you’ll have a more accurate valuation of your property by seeing what other properties have recently sold for in the same area. A lender will appreciate an investor who does their homework before presenting a deal.
RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. Connect with us today to discuss your next real estate investment.