With the real estate market as solid as it’s ever been, many are taking advantage of lucrative opportunities in real estate investments. Fix-and-flips are also being glamorized on HGTV’s Flip or Flop and Fixer Upper. However, rehabbing and reselling a home isn’t as easy as it looks. You definitely need to know what you’re doing and it’s ridiculously helpful to have a team of experts at your disposal to guide you through the process. Fortunately, The Investor's Edge provides a team of experts with every loan and we’re about to hand over the 5 secrets to fix-and-flip success.
We will dispense these secrets…now. Read fast – this blog will self-destruct in six minutes.
1. Be Extremely Selective with Your REI Deals
Fortunately, the first step in the fix-and-flip process is the most difficult one. Once you get past finding a property, you can coast on an easier path to profit. The key to making the most profit in real estate investments is to find an excellent deal. What makes up an excellent deal?… Elementary, my dear investor.
Fantastic location + home sold for a discount price + rehab < $50k = An excellent deal
Look in the safe, beautiful neighborhoods which have high home resale values. Sometimes, you will find foreclosures, short sales, auction properties or distressed properties being rented by tired landlords in these phenomenal locations. These types of properties are looking to be sold very quickly, giving you a great advantage in negotiating the purchase price. Caution: even when you find an amazing property, you still need to do your homework on its value. Make sure it isn’t so distressed that you have to pour hundreds of thousands into the rehab just to bring it up to code. Remember – just because a property looks like a great deal, doesn’t mean it will necessary generate a solid profit. You absolutely must trust in the numbers. Which leads us to tip #2…
2. If You Evaluate, Profits Will Generate
Like we said in Tip #1, just because you find a property and get it under contract doesn’t necessarily mean it’s the golden egg that will qualify for 100% financing. The next step is to thoroughly evaluate the property. Here are two major items to take into account when evaluating a home:
- The Property Condition – Send inspectors and your rehab contractor over to the property to detect any potential or present problems. You also need to ensure that the property is in the condition which you expect, so that you’re not bowled over by any major rehab surprises later.
- The Property Price – Look for active and sold comparables in the neighborhood to ensure you’re purchasing this property at a price which is reasonable and fair. Take houses that were sold and houses that are currently on the market and analyze the prices. Look for the lowest prices and compare them to your property. Starting with the lowest homes in the market and working your way up will help you more accurately pinpoint a house which is similar to yours. Looking at these comparables will help you determine the value of your property.
Also, be sure to keep these two tips in mind…
- Take Advantage of the ADA – The Investor's Edge has an excellent tool available to members called the Advanced Deal Analyzer. This tool will calculate the after-repair value, potential risk factors, cash to close and even an estimated net profit for your deal. If you run the numbers through the system and it comes back marked green, it is a profitable deal and you can apply for a hard money loan. If it comes back marked yellow or red, you should seriously consider dropping the property in favor of a more lucrative deal.
- Don’t Get Too Attached – When investors get too emotionally attached to a property, they will make every excuse in the book to follow through with the deal, even if it ends up costing them a great deal of money in the long run. They will over-value the property and get stuck with a home that will sit on the real estate market for months and years on end and eat into their profits. Even if it takes you months to find a property, don’t give up and don’t get stuck. There are plenty of other properties out there – your job is to find the most profitable one for you in the long run.
3. Apply for the Right Loan with the Right Lender
Congratulations! You’ve found a property in a great location going for an excellent price. You’ve run the numbers, performed the evaluations and double-checked everything to ensure maximum profit on this deal. Now it’s time to apply for a loan… and believe it or not, you have many options to consider here.
First of all, be sure to apply for the correct type of loan. With hard money loans, you have two different ways you can go:
- Retail Fix-and-Flip Deals: These loans are for purchasing, rehabbing and reselling properties. They are short-term loans which require the property to be rehabbed and resold in a few months time.
- Wholesale Deals: These loans are for purchasing the property only. Then, you sell the property to a buyer who will rehab and resell the property. These kinds of deals carry less risk and generate profit more quickly than retail deals, however, the profit is significantly lower with wholesale deals.
You can determine which way you want to go by running your deal through the Advanced Deal Analyzer. This tool will determine how much profit you can make on a deal if you fix-and-flip it or wholesale it. Many times, if you run a deal through the ADA and it isn’t showing a large profit, you can take advantage of the option of wholesaling the deal rather than having to start all over again and find a new property.
Now you need to find and work with the right hard money lender. There are many options out there when it comes to hard money lenders, but we can personally vouch without bias that The Investor's Edge is the absolute best. In addition to our unashamed humility, we have the facts to back up our claim.
- The Investor's Edge is the only hard money lender out there who offers 100% financing: If your deal is profitable enough, we will cover 100% of your loan without you bringing a penny of cash to close to make the deal work. How does it work? Simple, really. The Investor's Edge lends on 70% of the ARV (after-repair value) of a property. Suppose you purchase a property for $40,000 and the rehab is $30,000. You run the numbers in the ADA and it looks like the ARV of the property is $180,000. With DHM lending on 70% of the ARV, we extend a loan of $126,000 to cover costs. The property purchase price and rehab costs add up to $70,000, which is well within the limits of the loan. This means you don’t need to bring any cash to close to cover additional expenses, plus you’ll make a fantastic profit on the deal.
- The Investor's Edge is the only lender out there who offers a personal team of experts: The Investor's Edge is far more than just a lender. We have a vested interest in the success of our borrowers, therefore we provide them with everything they need: tools, resources, information, knowledge and a team of real estate professionals to walk them through every step of the deal. Each client receives personal attention from an investment director, associate, account advisor and project manager to ensure that every phase of the process is completed on-time and on-budget to maximize your overall net profit.
4. They Tried to Make Me Go Rehab, I Said Yes…Yes…Yes!
Rehabbing the property is an obvious step in the fix-and-flip process, but would you believe that a lot of borrowers trip up in this stage? One of the biggest reasons that REI deals lose money or go into REO is because the rehab work didn’t get done on-time or period. This is a step to take very seriously, so we’re going to give you some great tips to execute a successful rehab:
- Put Together a Time Schedule – Work with your DHM project manager and your contractor to come up with a time schedule for the rehab. This will ensure that expectations are clear and that the work gets done on-time. Make sure everyone keeps to the schedule and if things change, keep communication open and work together to overcome any rehab time obstacles.
- Type up a Rehab List – Write down every single thing that needs to be repaired, down to the last changed light bulb. It helps significantly to put these repair items in order of priority. Keep the bid information with the rehab list so you know exactly what everything is going to cost. You should also take pictures of different items you want to make the contractor’s job easier and to clarify how you want the rehab executed.
- Account for Bonuses and Deductions – A smart thing to do to keep all parties on-schedule is to write up an incentive program. Present the contractors with bonuses if certain jobs finish ahead of schedule. Place deductions on items that don’t get complete on-time. Remember, the faster you get the rehab done, the quicker you can get the home on the market and receive your net profit.
- Re-evaluate the Property Post-Rehab – Make sure you re-evaluate the property to solidify the value and know exactly how much to list the property for on the MLS.
5. Secrets to Selling Success
Once all of the work is complete, we highly recommend listing your home with a real estate agent. They get the maximum exposure and can give you some very helpful tips on marketing and staging your home.
We also recommend that you list the property for a price close to the after-repair value, or what you and your team of professionals believe the home will sell for. The tactic of listing a home for $20-30k more than what you believe it will go for and then negotiating lower is absolutely terrible. You are guaranteed to be chasing your own tail forever with that tactic and end up sitting on a property that won’t sell. Therefore, it is advisable to start with a good price (what you believe the home will sell for) and get an offer as soon as possible.
We reiterate – the faster you can get the home sold, the quicker you receive your profit. You will also save a great deal of money in potential interest by selling the home quickly.
Learn how to make money flipping real estate with us by attending our next webinar.