How To Become A House Flipper
Fixing and flipping homes is taking the nation by storm and not solely due to its media popularity with HGTV shows like “Fixer Upper” or “Fix or Flop.” Thousands are giving real estate investment a try and are discovering that it works, especially in areas with solid markets.
In addition to financial profits, flipping homes also adds greatly to the neighboring community. Jarrod Duncan, a banker and real estate agent in Tennessee, states “Looking at it more broadly, those of us who are into flipping houses are doing a service to neighborhoods, when you consider the benefits of rehabbing a vacant house that’s just been sitting around and falling into decay. This house we’re working on now had been sitting idle and vacant for at least a year and the surrounding neighbors have told us how much they appreciate what we’re doing with it. It transforms eyesores.” Tennessee contractor Bryan Sutton is of a similar opinion: “The broader, positive impact of this trend, is that it’s really a house-by-house revitalization of entire neighborhoods. We’re bringing these houses back to where they need to be.”
We see how house flipping can be extremely profitable and improve the surrounding communities, but what is the secret to becoming a truly profitable fix-and-flipper? We’re breaking it down into 5 easy steps which can significantly increase your knowledge and success with rehabbing and selling homes in half the time. So, how to become a house flipper? Read on.
The 5 A’s to Becoming an Expert House Flipper:
In order to take part in any real estate investment, you must have capital. Assess how much cash you have available to invest in a flip and your borrowing options. Usually, it’s preferable to have at least $3,000 in earnest money to put towards the investment deal and one of the best places to go for funding your property purchase price and the cost of the rehab work is a hard money lender. In real estate deals, time is money, and it is absolutely crucial to have the funding right away so that you can buy the property you want to fix up and resell before someone else gets their hands on it. Banks and credit unions oftentimes do not lend for fix and flip deals at all, or if they do, the paperwork will take weeks to process – time you can’t afford to spend waiting for approval. They could also deny a loan based on bad or poor credit scores.
*How Do Hard Money can help you: Do Hard Money is fast funding for real estate investment deals and we can typically provide you with a loan within a few days. We do not approve funding based on credit scores. Whether your score is good, bad or ugly, we can still provide funding for your deal since we lend on the quality of the overall property deal and not on the borrower as an individual. If your deal is profitable enough, we can even grant access to 100% Financing, which entitles you to 100% funding for your property purchase price, rehab costs and other fees and you may not have to bring any cash to close to the table.
Realistically, a house flipper cannot do all of the negotiating and rehab work by themselves. It is essential to assemble a team of experts to assist you in your flip. This team can include real estate agents, attorneys, contractors, project managers, hard money lenders and gap financing resources. To become a highly profitable real estate investor, it’s important to both become knowledgeable in all aspects of flipping a home, from purchasing to rehab to resale, and to surround yourself with experts in these fields. Make sure your dream team comes highly recommended so that your deal doesn’t suffer due to any inadequacies or poor workmanship.
*How Do Hard Money can help you: It can take a great deal of time and money you may not have to assemble a fix-and-flip dream team…plus, the individual members can be tough to track down. Do Hard Money provides and assembles your team for you, so you don’t have to worry about any aspect of your deal. In addition to giving you your own personal investment director, account advisor, project manager and loan coordinator to work with you every step of the way, we also provide you with a simple, 10-step program, giving you absolutely everything you need to know to successfully execute your first fix-and-flip. We could also go into the vast wealth of knowledge, guides, training and other resources Do Hard Money contributes to you specifically, but we would be here all day.
Finding an excellent property can give you a huge leg up in your overall profit. Acquiring an older property in a highly desirable area which requires some repairs is the key to investment success. Determining whether or not a deal is good, plus how much profit you can make off of it is something we will discuss in detail in the next step. However, it is important to keep in mind that location is crucial in a deal. Perform evaluations of other properties in the area – how much they previously sold for, and the quality of the area itself (crime reports, proximity to major roads, highways, railroad tracks, etc.) to make sure that the home will sell quickly. A home can be rehabbed to the nines, yet sit on the market collecting dust if it’s in a less-than-desirable neighborhood or other location.
*How Do Hard Money can help you: We have a top-notch Finding Properties technique to help you weed out the bad deals and find properties which will give you the greatest overall profits. We also provide 2-3 separate evaluations of the property to take into account all risk factors and ensure the home is in a desirable location which will attract buyers. If the property purchase price is low enough and the surrounding area enticing enough to potential buyers, you could qualify for 100% Financing for your deal.
There is a great deal of math included in determining whether or not a deal will be profitable. You need to appraise essential aspects of the deal, paying particular attention to the ARV and the MAO. The ARV is the after-repair value of a home, or how much you will ultimately sell the property for once repairs and renovations are complete. Just as important is the MAO, or the maximum allowable offer – the highest allowable price you will pay for the property. Legitimate hard money lenders will lend up to 70% of the ARV; for example, if you purchase a home for $90,000 and plan to resell it for $235,000 (the ARV), then the hard money lender should extend a loan for up to $164,500 (70% of the ARV). This will cover the $90k you need to purchase the home, plus extra funding to use for rehab costs, closing costs and other fees. To calculate the MAO, take the ARV and multiply it by 70 percent. Then deduct the rehab costs and you’ll get the MAO. For example, if your ARV is $200,000, multiply it by 70% to get $140,000. Then, subtract the anticipated rehab costs (say, $40,000) and you have an MAO of $100,000. To ensure maximum profits on your deal, it is imperative to know the maximum amount you can pay for a property while still yielding a profit, plus how much the property can resell for.
*How Do Hard Money can help you: We provide an exclusive tool which calculates the ARV, MAO and other costs, while taking various risk factors into account, called the Advanced Deal Analyzer. This tool can also calculate an overall estimated net profit for your deal. In addition to giving you an MAO for minimum net profit, the Advanced Deal Analyzer can get you an MAO for 100% Financing. Using this analysis software will help you determine every cost down to the penny, so that you can know how much funding you will need and how much profit you can make on any deal.
Time is of the essence and immediate action is needed with every step of the fix-and-flip process in order to gain the highest returns on your investment. Remember, hard money loans are short-term loans; the less time you hold onto your investor’s money, the higher your profits will be. According to Mike LaCava, a real estate investor in Massachusetts, “The reason your profits diminish with time is that the longer the renovation takes to complete, soft costs such as financing payments, insurance payments, local taxed, utilities and any and all other carrying costs start to add up. The more these add up, the more they diminish your profits.” An excellent way to cut time and not sacrifice quality is to turn the rehab work over to a professional rather than trying to do it yourself. Jarrod Duncan offers the following insight: “With each new project, I’ve learned more techniques to be more profitable…when I can hire a professional to do this work rather than extending the time by trying to do it myself, the financial benefits of hiring it out and moving more swiftly on a flip become easily evident. The rate of return is much greater.”
*How Do Hard Money can help you: We understand better than anyone that speed is essential to making a profitable deal happen. This is why our team handles and processes paperwork and funding as quickly as possible to make sure there are no bottlenecks or pauses in lending. Our loan coordinators work efficiently with you to make sure every item is taken care of and every signature acquired, and your personal project manager ensures the rehab work for your deal is done on-time and on-budget.
Now that you know how to be a house flipper, why not apply the knowledge to a lucrative real estate deal?