As fixing and flipping homes becomes more popular, there is an ever-shrinking margin for error to make a profit. Mary Jayne Lattig from Alliance Realty Group states, “Flipping is no longer generic as it was in the downturn. In the recession, anyone could go in, do a repair, maybe not the best job, and turn a profit. Now you have to be more specific and have a keener sense of value.” To generate a solid return on your investment nowadays, you need to be savvy to the top 3 things you need to know to make a profit. These are the where, why, and how of the REI industry. We will break these points down for you so that by the time you finish reading this blog post, you can get started right away on your first or next real estate investment.
3 Things You Need to Know to Flip a Profit:
1. Where… to Find Great Deals
The #1 key to obtaining 100% financing is finding a really good deal; a deal so lucrative in its ARV (after-repair value) that it practically pays for itself and then some. One excellent example of such a deal was Ivan A.’s deal. We recently funded a property he found in Accokeek, MD, which is ideally located off of the 210 and is a fast and easy commute to DC. The property also has mature apple, pear and plum trees in the yard and is in a safe neighborhood. The ARV is estimated at $240,000 – so high that our 70% ARV loan covers the property purchase price and the estimated rehab costs, with Ivan not having to bring a dime of cash to close to the table.
Finding great deals doesn’t have to be equated to searching for a needle in a haystack… you just need to know where to look. Here are some excellent places to start:
- Search Neighborhoods with a Known Track Record – Make a list of areas which have excellent selling records or are most popular with current buyers. Check out these neighborhoods to see if any homes are for sale or foreclosing.
- Search for Bank Foreclosures – This is a fantastic source, as foreclosures are sold at below-market prices, involve less competition and less risk and seek to be sold quickly.
- Search for Short Sales – As with foreclosures, short sales are bargain-priced and seek to be sold as quickly as possible. These are particularly favorable if you already have a lender and funding ready to go.
- Search Auction Sites – This is another place where you can snag a property at a great price, but make sure you do your homework ahead of time on the properties listed: are they in good areas? How much can you bid for the property while still maintaining a profitable margin? Once you determine these numbers, stick to them. Don’t let the heat of the moment in an auction get the best of you.
2. Why… Hard Money?
Suppose you want to fix and flip a house for a profit…but you’re not mega-rich. Guess what?… We’re all in that same boat with you. This is where lenders and other financial resources come in. Many look to crowd-sourcing to fund their flip, but that takes time and risk neither of which you can afford. Others who try to get funding through traditional banks find themselves faced with a ton of obstacles: first, traditional banks don’t usually fund fix-and-flip homes, especially if you’re new to the game. Usually, they require 2+ years of a profitable track record flipping homes. Second, they require a credit score of 700 or higher to finance the loan. Third, the loan, if you can get it, will take a weeks or months to secure. While you wait for this loan, a profitable deal can slip right through your fingers, snatched up by another buyer.
The best way to get funding quickly and easily is to go to a hard money lender. These lenders will provide you with a short-term loan so that you can buy the property, fix it up, resell it and pay back the loan within 3-5 months, pocketing your net profit quickly. The best part about a hard money lender like DoHardMoney.com is that we don’t require a minimum credit score, down payment, previous experience or monthly payments. We also provide an advanced deal analyzer tool to calculate all of the details which make up your loan so that you can see how much money you can potentially make on a deal at the click of a button.
3. How… to Network
Like we mentioned before, fix-and-flip deals are getting so competitive these days that in order to make a profit, you need to be smart about the rehab execution. The best thing to do is to network with a reliable, talented group of professionals which will do the best work for your rehab and get it sold quickly. It’s imperative to find excellent contractors and real estate agents to make up your dream team. They can be found a variety of ways:
- Check out Real Estate Groups – Attending these meetings can help you network with people who either are contractors and agents or who can give you a great referral for an excellent contractor and agent they’ve worked with in the past.
- Check Online Forums – If you take a look at fix-and-flip forums online, you’ll be able to get in touch with some of the best contractors and agents with excellent track records.
- Check Online Reviews – Checking out online reviews will help you pinpoint the best people to work with in your area. You can also check out their ratings on BBB.
Learn how to flip properties with us by registering for the next webinar.