Six Quick Tips for Fix and Flips

Rehab loans are a big part of the hard money business. Here are a few suggestions for those who are looking to flip homes. 

1.   Remember, if it were easy everyone would be doing it.

This isn’t HGTV. You can’t flip an entire home in one 30 minute time-slot. It takes a lot of time, a lot of expertise, and a lot of hard work.

You may see advertisements tout “I quit my job and started making $100,000 a year flipping homes!” This isn’t quitting a job; it’s stopping your old job to start a new one.

2.   Chose the right home in the right area for the right price

 The right home:

Buying a decent house and turning it into a nice house is more profitable than buying a nice house and turning it into an exquisite home. It is also more consistent and has less hassles than that abandoned home that you can pick up for $50,000 that needs to be rebuilt from the ground up.

 Homes that only need new carpet, new paint, and granite countertops are the best investments. You can make a good profit in a predictable time frame.

The right area:

Remember the three L’s of real estate: location, location, location. A run-down home in a nice area is a better investment than trying to flip the nicest house on the block, even if there are a lot of improvements to be made.

The right price:

When somebody calls saying they got a “killer deal” on a “unique home,” we cringe. What somebody is willing to sell the house for is usually exactly what the house is worth.   

That “Frankenhouse” with 7 added on rooms on a busy street isn’t a good deal, it’s a bad idea. A unique home takes a unique buyer and you need your home to be marketable to as many potential buyers as possible.

 Be patient. It’s worth waiting for the right house.

 3.   Have a good down payment.

You might think this suggestion is strange coming from the lender. The more money we lend out, the more money we can charge. Although that may be true, we want to make this a win-win transaction

So why is it better to put more money down? The more money you put down, the less interest you're paying and less anxiety you feel each day that the home doesn't sell. The most profitable fix and flippers we work with generally put down about 50% of the purchase price.

4.   Find a mentor and chose your team wisely

Your Mentor:

 The wisest choice you may ever make in your flipping business is to work for someone else first. Just because this is a do-it-yourself type of job doesn’t mean you need to do it alone.

Your Team:

 Your team can consist of lenders, CPAs, lawyers, real estate agents, general contractors and subcontractors. Network and create relationships with people you trust. Flipping is a team sport; everyone needs to be focused on the end goal for you to win.

 5.   Consider getting your real estate license.

Using a Realtor can cut into your profits; however, having your own real estate license isn’t just about saving money. The skills you need to be a good Realtor are the same skills you need to be a good flipper. These skills include knowing your current market and creating a good CMA (Comparative Market Analysis). Having access to the MLS is another indispensable pro to having your license.

 Keeping up your license is an expense, but it's a cost that will save you money every time you buy or sell a home.

 6.   Create a well-informed budget and stick to it.

When choosing which home to make an offer on, you need to have a good estimate of what the total budget will be. This includes Realtor fees, lender fees, interest payments, and the cost of supplies and labor.

Expect the unexpected. We suggest adding 20% on to your repair budget for any unforeseen costs; and if you don’t use it, that’s more money that goes directly back into your pocket. 

Money Matters: 10 Tips for First Time Home Buyers

A lot goes in to buying a home. From the lender’s end, these are the things you need to focus on.

1)      You can do it!

The number one reason people don’t buy a home is because they don’t think they can qualify. Most Americans believe they need 20% down and a perfect credit score to buy a house. That’s simply not true.

Only 3.5% down is needed for an FHA loan. Conventional loans require 5%. In most cases if you have 620 FICO or above, you should be able to qualify for a loan. Some loan programs can be used for scores even lower than that.  

2)      Save cash.

It can take a while to save up cash, even if it’s only 3.5% to 5% of the purchase price. If you’re thinking about buying soon, start saving. 

There are programs where a gift from a family member is an acceptable down payment. Talk to your loan officer to make sure you know what documentation is needed. 

3)      Establish credit. Now!

Establish several trade lines at least 6 months before applying for a home loan. Get a credit card. Keep the balance low. Buy a car, without a co-signer if possible. Credit cards (revolving credit) and car loans (installment credit) effect your credit differently. You need both. 

4)      Fix your credit if there are issues.

Fixing credit sometimes doesn't take as long as people think. If you have judgments against you, pay them off. Sometimes it is possible to have these judgments removed from your credit history. Pay down any credit card debts. 

5)      Get a target price range.

In order to qualify for a loan, your total debt-to-income (DTI) ratio must be less than 43%. This means that your house payments (Principal, Interest, Taxes, and Insurance) and other payments (credit card, car) must be less than 43% of your monthly income.

Only you can decide what you can afford, but remember it may not be best to buy a house that puts you right at your DTI limit. 

These calculators on our website are a good start to find out what you can qualify for. 

You are also welcome to call any of the loan officers here at Capital Assets to give you an analysis for your home purchase. 

6)      Be familiar with Zillow, Trulia, and other home buying websites.

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These sites are great tools for you to find what homes are selling for in a specific area. Remember “Zestimates” may not be very accurate. Focus more on the sale prices of the homes.  

7)      Consider using a Realtor.

You may be able to save money by not using a Realtor, but the Realtor may save you hours of headaches and hassles. 

Remember there is a buyer’s agent and a seller’s agent. If you have a Realtor you want to use, let them do their job. They should be the one to contact the seller’s agent. If you contact the number listed on the sign of a home, plan on that Realtor wanting to be the buyer’s agent and the seller’s agent. 

8)      Don’t be afraid to buy a “For Sale by Owner”.

Homes are purchased without Realtor’s help every day, but make sure communication between you and the seller is extremely clear. 

9)      Remember there is a lot of federally mandated paper work involved.

There is a ton of paperwork. Be ready for a process. You may talk to your loan officer more than you talk to your best friend during the process of the loan. There will also be a lot of emails back and forth. Respond with the information as quickly as you can. Your loan can only close after you provide all necessary documents.

 But remember it’s worth it! At the end of all the paperwork, you get a new home.

10)  Use a loan officer you know and trust—like us!

Our prices for traditional loans can’t be beat. Your Realtor or contractor may have a preferred lender, but please always ask us for a price analysis. You will be pleasantly surprised by how much money we can save you.

Call us today at 801-269-9988 for further questions or a free quote.