How to Find and Finance the Best Fix and Flip Houses
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Are you interested in trying your hand at house flipping? Use these tips to find the best fix and flip houses and profit from your efforts.
Fixing and flipping a house is an excellent investment if you have the time to put work into a property. Purchasing a home without doing any renovations is a great way to build wealth, and making serious changes to homes will only increase your returns.
There’s a lot that goes into the process, though. From finding the right neighborhood to getting financing, there are a number of things that you have to look out for along the way.
We’re going to take a look at how to find the right fix and flip house today, giving you some insight into ideas you can use in your fix and flip strategy.
Let’s get started.
Getting Financing for Fix and Flip Houses
It’s a good idea to get pre-approved for a home loan before you start looking for houses to flip.
Pre-approval pretty quick process that allows you to see how much money you can get to spend on a property. Having a clear price-range in mind will make it a lot easier to search for houses.
There are a couple of different ways that you can approach finding a loan for a home that you plan to flip.
The first option that you have is to get a traditional mortgage on the home. This simply covers you with the amount of the home itself.
Any repairs or renovations that you make on top of the cost of the home will have to come out of your own pocket. This is advantageous to you if you have a lot of disposable income to work with and won’t be too strained to cover contracting costs.
When you take this route, the return on investment is higher. All of the equity that you gain through various improvements will come straight back to your pocket. That said, taking this route is incredibly difficult if you don’t have that extra cash laying around.
Contracting and renovation costs can get high, and there’s often a lot of uncertainty as to the specific costs when projects get underway. Contractors might take longer than expected or need to use additional materials that can bump up the cost.
So, if you have the extra cash, it’s a good idea to go with a traditional home loan. That said, most people don’t have that additional money but still want to invest in fix and flip real estate.
Fix and Flip Loans
Fix and flip loans are beneficial to those who don’t have tens of thousands of dollars to use on the home. In most cases, the cost needed for a down payment is as much as a person would like to take from savings to use in the investment.
With that in mind, fix and flip loans cover you for all of the expenses that are involved with the flip. So, you receive a loan for the home but you’re also given money for the anticipated expenses of improving that home.
There are two different forms that fix and flip loans can take. Loan-to-Cost options offer you loans that cover the projected expenses of repairing the home. So, you get money for the home and whatever you expect to do to it.
The other option is loan-to-value. In this option, your loan will correspond to the anticipated value that you might receive from the house after you’ve flipped and sold it.
These options make it a lot easier for those who are just starting out. You can make the investment into a home without already having significant wealth to contribute.
Finding The Right Home to Flip
After you’ve sorted the logistics of how to finance the project, you can start looking into potential homes to flip.
It’s important to identify how you’d like to approach the process. In other words, are you fixing and flipping as a means of making money, or are you doing it as a profitable project that you’re also passionate about?
You might look around the market and find a home that looks really interesting and exciting to work on. You might also find one that looks less enjoyable to repair but would offer a higher return.
The ideas we’ll discuss below apply to that second category, but don’t ever shy away from something if it seems like you would have a meaningful time repairing it.
When you’re looking in terms of profit, though, the first thing to consider is the neighborhood.
Buying in The Right Neighborhood
Neighborhoods have a direct correlation to property value. Even if a neighborhood is currently valued pretty low, take a look at the trends in various areas to see how prices are projected to change.
Different areas are always in flux when it comes to property value. Construction of various businesses or general improvements to neighborhoods can boost values a great deal.
Aside from statistics, you should also use your personal judgment to see if a neighborhood works. How does the general curb appeal of the area feel?
Are there are a lot of vacant structures around the home? How does the area do with crime? Some other things to look for in the neighborhood are safety features like street lights, well-managed streets, front yard quality, and aesthetics of the homes around.
People want to live in neighborhoods that are safe and well-kept. If you can find a run-down home in a great neighborhood, that’s an investment worth making.
Attractive Local Features
It’s also worth thinking about the things that exist around your potential home. Are there a lot of parks in the area? How about facilities, community centers, and opportunities to go out and shop or experience nightlife?
All of these factors will work their way into your investment. While the initial price will be higher if there’s a high walkability score, your investment will grow more as well.
You want to gear toward safe areas that have proximity to attractive local features. You also want to avoid homes that are nearby to anything that might be disruptive to peace and quiet.
Areas like airports, loud bars, and fire stations can often be noisy and lower your property value.
Home Qualities to Look For
Any fix and flip home you buy is going to have some significant problems. This is a good thing in a lot of cases because it means that you have clear routes to improving the quality and value of the home.
That said, there are some things that you want to watch out for. Most importantly, look out for issues with the foundation. Foundational issues can be incredibly costly to take care of and prolong the flip process.
On the other hand, fixing those structural issues will boost the home’s value a great deal. It depends on how much time and money you’d like to invest in the project.
Generally, the more improvements a home needs, the higher the return on investment if those problems are fixed. This is a double-edged sword because that also means that you need to get approved for a higher loan or have more money to invest on your own.
There are a few areas of every home that are hotspots for investment. You can seek out homes that have shoddy kitchens, bathrooms, and curb appeal because those factors will drive the asking price down a great deal.
Once the home is yours, investments made to the kitchen and bathroom tend to have the highest returns. Swapping out a decrepit bathroom for a beautiful new one will certainly drive your equity up a great deal.
The same goes for the kitchen. You can improve the curb appeal of a home by adding a deck or patio. Patios tend to have particularly high returns on investment, especially if you can find a way to make them private with an enclosure like a fence.
Projects You Can Do Yourself
Another great way to maximize your investment is to look for homes that need repairs that you can take care of yourself.
It’s unwise to take on too much on your own, especially if you don’t have the correct knowledge or tools to keep yourself safe. That said, there are a lot of things that don’t require contractors or professionals to do.
Even if you’re not sure how to put in a tile or replace a garage door at this point, you can use the flip as a learning process. As you go on, you’ll figure out how to do a great deal and you can transfer those skills to future fix and flip projects you might find.
Ready to Move Forward?
If you’re looking to fix and flip houses but need a little help with the specifics, we’re here to help you out. We offer various options for you to get financing for your project, whether you’re flipping a home or building it from the ground up.
Contact us to learn more about your options and what you can do to start moving forward with the investment. If you’re looking for more tips and tricks on finding the right property, we have those, too.