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The Art of Flipping: How to Make Money with Fixer-Upper Investments

It’s no secret that fix and flip investments are a great way to make money with real estate. Flipping provides investors with great returns, especially if they elect to do a majority of the renovation work themselves. However, the key to making money with a fixer-upper lies in choosing the right market, home, and renovations to perform. If you don’t know exactly how to approach the deal, it can be easy to make a mistake that eliminates your profit margin. In this blog post, we cover the ins-and-outs of home flipping so that you can know what to look for with your next real estate investment.

Research Different Real Estate Markets

The first step to making money with flipping is finding a market that’s worth investing in. Remember that you don’t necessarily have to invest in your local area, and that there are many markets across the US experiencing high growth and demand for housing. You can look at the data on a specific region to determine if it may be worth your investment. Any markets that are seeing population numbers booming, a growing job market, or increasing home prices will likely make for a good choice.

Find the Right Property

There are a few specific criteria to consider when you’re looking for a property to flip. If you plan to make a profit selling the property, you need to make sure that it will actually be in demand when it comes time to sell. While the property itself doesn’t need to be perfect (you are going to be fixing it up, after all) you should at least ensure that it’s in a good area that is safe, and ideally one that has access to amenities like shopping centers, restaurants, or entertainment. Your goal should be to find a discounted home in a great neighborhood, so that it can grow to match the value of surrounding properties.

Run the Numbers

Once you have found a property that you think will work, it’s time to run the numbers on it. Start by obtaining accurate estimates for renovation costs and the final sale price. You may even want to overestimate your repairs to account for unexpected costs that may pop up. A good rule of thumb is 10% extra for each line item. Then with these numbers, you can use the 70% rule to determine if the property makes for a good investment. This rule states that you should never pay more than 70% of the After-Repair Value (ARV) of a property, minus expenses. It helps ensure that your deal has enough of a profit margin built into it that it’ll be worth your time and money.

Secure Financing

The next thing you’ll want to do after you have found a potential property is obtain financing and submit an offer. It’s one thing if you’re able to pay for your investment in cash, but most people will be looking to take out a loan. Traditional lenders like banks or credit unions are an option, but they may not be willing to provide funds to cover renovations, and they may also deem a fixer-upper as too risky of an investment. The best solution is to obtain financing from a private lender that has experience in the real estate space. These lenders offer loan programs designed for flipping that cover renovation costs on top of the acquisition costs, as well as a shorter loan term of 6-24 months.

Perform Cost-Effective Renovations

The key to making a good return with a fix and flip investment is performing the right renovations. You want the upgrades you make to cost you little while also having a big impact on the look and feel of the home. Some good areas to focus on are the kitchen, bathrooms, and living room, followed by the bedrooms. You’ll also want to pay attention to the exterior of the home, as its curb appeal will be an important factor in your final sale price. Once renovations begin, be prepared to deal with unforeseen obstacles that may delay your timeline or increase your budget.

Marketing and Selling

After renovations are complete it’s time to focus on marketing and selling the property. You will want to work closely with an experienced real estate agent so that you can get the most out of the sale. They’ll be able to match you with the right buyers so you can sell quickly and for the right price. Besides listing your property in the MLS, you’ll also want to make use of other avenues like real estate groups on social media and open house events. For the listing itself, you will want to take great photos because they will attract more potential buyers; Consider hiring a professional photographer to make your listing stand out. Finally, you will want to become comfortable with negotiations during this process, so that you don’t end up on the wrong side of a bad deal.

Managing Risk

Another important aspect of a successful fixer-upper investment is being able to proactively manage risk. It’s important to note that you can mitigate much of the risk by performing the appropriate amount of due diligence before you make any purchases. You can also increase your chances of success by building a reliable network of real estate professionals – namely an experienced real estate agent, a tax professional, and a contractor with a verified work history. When renovating, you should construct a timeline that you can reasonably follow to guide the project to completion. Staying on top of things and being involved is the best way to ensure success with your fixer-upper 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 an investor looking to finance a home flip, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.

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