If you are on the lookout for your first house to flip, your new best friends are research and expert tips from experienced flippers. With the right knowledge in mind, house flipping can become a lucrative real estate career for anyone with enough determination to succeed. In this article, we’ve put together the four most important things first-time house flippers should know and look out for as they seek and renovate their first investment property.
Where To Find The Best Properties
For starters, let’s talk about where to find your first flip. The idea is to locate homes that are situated in growing neighborhoods, but which need some work to be considered desirable to the local residents. Unfortunately, new real estate investors often don’t know where to look to get the best deals on the market. This is a rookie mistake that can quickly cut into your profit margin. In worst cases, it can be the difference between a profitable flip and money lost.
Foreclosures/Bank Owned Homes/REOs
This category of housing is extremely profitable for real estate investors, particularly those looking for a house to flip. Because there is such a high cost for banks to repossess a home, they usually want to sell them as quickly as possible. Bank-owned homes make for a motivated seller who is willing to give away properties at a fraction of their value. The best part is that often foreclosures come at a major discount that has nothing to do with damage to the property.
Distressed Homes
Distressed homes are a tricky category for new flippers, though, for more experienced home flippers, they can be a gold mine. Distressed properties are typically the product of neglect, which can be merely surface level, or run much deeper. If you’re going after a distressed home for your first house flip, make sure you hire a trusted, licensed home inspector. While cosmetic fixes are easy enough to budget for, structural/foundation damage is a can of worms best left shut.
Where To Find Them
Aside from your personal network, an excellent source of foreclosures, REOs, and distressed properties is Connected Investors’ PiN 5 software, which locates these difficult-to-spot gems across the entire US housing market. Investors need only enter their desired location, and PiN will source the best properties on the market instantly. You can try PiN for free by clicking here.
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How To Accurately Calculate Profits
This is one aspect of finding a house to flip you want to get 100% right. Since house flipping is a numbers game, real estate investors must learn to accurately calculate their estimated profits.
How To Make Accurate Estimates
Before you can estimate profits, you need to estimate your expenses. To do so, must have a home inspection and acquire estimates on the repairs that are recommended. Calling multiple contractors to get estimates on labor and materials (and the market value of each completed repair) is the best way to ensure accuracy. This way you know the average cost for completing each portion of the renovation, and how much value it should add to the property.
Calculating ARV
ARV, or after repair value, is one of the most critical components of your house flip. Without knowing how much a property will be worth once it’s repaired, how can you determine your profit margin? Before making an offer on a property, you absolutely need to calculate this metric.
First, determine the value of the property as-is. This can be done with the help of an appraiser. Next, add up the value of the repairs you will be making, based on contractor estimates. Add these two numbers together to get your after-repair value. You should also check this number against real estate comps for reference.
Where To Get Funding
Most first-time flippers will turn to their bank for a traditional loan. If you can get one, this is a fine place to start. However, if you’re turned down, don’t be discouraged. Most real estate professionals looking for a house to flip to don’t rely on traditional mortgages to fund deals. There are two little-known secrets most real estate investors use to secure funds: private money and hard money.
Private Money Lenders
Private money lenders are individuals with cash reserves who want to make passive income on their savings. These people are not certified lenders, but with a basic contract drawn up, both lender and borrower can be legally protected. Private lenders can be found within your network and without having to look as hard as you think. If you know someone with extra cash, pose lending to you as a potential investment opportunity for them.
Hard Money Lenders
Hard money lenders are similar to private money lenders in that they are not banks, and they are typically easier to get property investment loans from. However, hard money lenders are certified. They may be individuals or organizations, and you can secure a mortgage from them as you would from private lenders. To get connected with hard money lenders, a real estate investor need only conduct a Google search, though it’s advisable to carefully vet any hard money lender you intend on using.
That’s why we created CiX, a platform where real estate investors can secure loans for investment properties from hard money lenders in minutes. No need for a credit check: just answer a few questions about your loan requirements, and you’ll have hard money lenders competing for your business, giving you the best chance of getting optimal loan terms.
What To Focus On During Renovations
One of the biggest mistakes rookie house flippers will make is not knowing where to spend their budget on renovations. Of course, all repairs your home inspector recommends are a priority. But when it comes to cosmetics, many flippers go overboard, believing that the more they spend, the more money they will get back out of the deal. This is simply not true, and it can lead to quickly sucking your profit margin dry.
Doing a little research into the kinds of materials found in real estate comps can help you determine how much you need to spend to get buyers interested. While every neighborhood is different in terms of what buyers will expect, there are a few areas that always need attention.
Curb Appeal
This is the first impression you will make for your buyer. Simple maintenance such as cleaning up the yard and planting a small garden will go a long way. In addition, if the fence or siding demands a fresh coat of paint or stain, these improvements will help form a positive impression for buyers before they ever walk through the door.
Updating The Basics
Likewise, a fresh coat of paint in each room will update a home instantly. Avoid bright colors, and stick to neutrals, earth tones, and light hues. Having the house cleaned professionally, or at least thoroughly, will also dramatically help with the presentation to buyers.
Kitchen and Bathrooms
Kitchens and bathrooms are typically focal points to buyers, and if any major renovations are done, they should be to these areas. Laminate floors, new fixtures, re-caulking, updated appliances, and a fresh coat of paint are generally sufficient. Unless, of course, your research calls you to make bigger upgrades, as can sometimes be the case in upscale neighborhoods.
The Takeaway:
- Use PiN to locate houses to flip.
- Accurately determine your profits.
- Get a property investment loan at CiX.
- Carefully research and budget when making renovations.
- Check out our other resources for investors searching for houses to flip. The more you know, the smoother and more profitable your first flip will be!
Need more info on flipping for the first time? Read this: How To Flip a House: 5 Things You Need To Get Started
The post The 4 Key Basics To Know as a First Time House Flipper appeared first on Connected Investors Blog.
* This article was originally published here
