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
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 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.