If you’re searching for flipping houses 101s, then the first one that needs your concentration is the fact that it is not as easy as the TV reality shows and late-night commercials tell you.Yes, there are certain pitfalls in the business that make the process complex and entirely based on the behavior of the market.However, this doesn’t mean that you shouldn’t invest your money in the endeavor. Like everything, there are some tactics in flipping also that allow novices and professional businessmen to streamline the process for themselves. It is because of these strategies that the players of the market make everything seem so easy from the outside How To Get Started Flipping Houses.
As we are discussing the problems in the flipping and the resulting difficulties, one of them is finding a good house that could economically pay off. There are many retail buyers in the market that have their eyes on almost every house in their area. While that might have made things easy for them, it has escalated the overall competition; thus, suffocating any plausible chances for newcomers. They use tactics such as direct mail, social media marketing, real estate agents, and their networks in finding optimal houses that could generate optimal ROIs. Some of them even go as far as to make an additional after sale payment promise.
Sometimes even the big players have difficulty in finding new houses for flipping. In this case, what they do is that they place a secondary bid on the house just in case the owner rejects the primary offer. Although it may seem like a secondary success, in businesses such as flipping, success of any kind is a jackpot.
One of the other problems with flipping is that if you’re really into getting started with flipping the houses, you’d need a good capital for it.This completely rules out any possibility for you to believe in those people who tell you that you can actually start a successful business with no money down.
The truth is hard and fast. Nobody is going to give you their house in return for nothing. Going to the Home Depot is also useless because they too wouldn’t give you any supply for free. You could think of using your credit card, but the odds of that are also very slim.
There are conventional investor loans, but even for them, you’d have to pay at least 25% to 35% down payment.It almost seems as if every door you thought of knocking is closed. However, that’s not the case.
Your mortgage broker might have better options for you. For example, investor mortgage with a low-down payment or someone who provides a loan. There are also hard money lenders that you can use at your disposal; however, given the name of it and the practice, they usually charge high interest rates and a few points on the top of it. For example, on acquiring a loan of $10,000 with 5% and 4 points, you’d end up paying $500 + $4,000 = $4,500.
You can, for a change, trust any of your family members and relatives or friends to be your investor, but that too requires a lot of efforts and communication skills that could easily motivate or persuade him to invest his money in the venture of flipping. You could be partners with him and divide the profit 50/50, where you’d be working and he’d be investing.
Well, we didn’t want to scare you off in any sense, but since we want to be prepared for the worst, we quoted some of the problems. We’re going to state some of the others as well. So, stay tight.
Other problems in getting started with flipping houses are the renovation cost estimation by the flipper or his team and the ability to assess the timeline of the repairs. Of course, both of these have a considerable effect on the gross profit or the ROI and you need to make necessary arrangements for them.
The costs could mount up to a heap of utilities, maintenance costs, repair costs, marketing expenses, and taxes such as insurance and mortgage tax. Therefore, it is paramount for anyone with a sound mind to keep a track of these and keep them in their mind so that the issues to be faced later are mitigated to greater extents. After all, we don’t know what lies behind the house walls, and to be able to face that, we’d have to be prudent enough in terms of accurate estimates.
After renovating or maintaining the house, the next step is definitely selling. There are some pitfalls here, too. The price of a renovated house depends on the prices of the market of its location. You cannot simply go on and render a higher value to the house just because its renovation drained your budgets. You’d have to keep all of the market dynamics in your mind before even thinking about it. This is also one of the reasons you need to be good at estimations.
The key problems discussed above are all the hurdles that any new flipper could face. However, there are key strategies that could enable them to leap over those hurdles just as easily as they envisage. Let us see what they are:
1. Paying no more than the deserved price
How would you know what price to pay for a house? Well, through deep market research, of course. That research would get you the window to know the Maximum Available Offer – the ultimate price of the house that is suitable to be paid after subtracting the After-Repair Value from the market value of the house.
When you have the perfect estimation, and pay the price that you calculate through analysis as stated above, you can, in no way, run into risks of losing your investment.
2. Have access to optimum cash
Even if you don’t have your own fat bank account, you can still lend money from hard-money lenders, a traditional lender, mortgage bank, or a private lender. However, be known that each of these loans have their own repercussions when a longer timeline is considered. Therefore, you’d need to be intrinsically scrupulous in finding out your ultimate cash source. In our opinion, the best option for any person getting started with flipping houses anew should think about lending money from a private lender. That way, you could easily have all the interest rates in control and also have the lender trust you if you need an increase in the loan.
3. Be strict and fair with the estimations
We did allude to this in the first strategy stated above, but we’d like to shed some more light on it. A fair estimation can only be made when your team has the appropriate approach towards the flipping. Making an accurate timetable, in that manner, could be fruitful for you as well as the house owner in the long run. The best practice is to spread out and dig deep into the landscape of real estate, know where the treasure lies, and devise methods to extract it. We recommend you go with $2/square foot budget estimation; however, be sure that this is might be more than you speculate for the type of property you have. To make the long discussion short, always bring into account even the smallest maintenance cost that you’re going to face.
4. Hire the best contractors
The best contractors out there will make your overall flipping job a breeze. Since they’d be experienced in renovating houses and making apt estimates, you’d have fewer things to worry about. Finding them can be a hard practice, but through trial and errors and recommendations from the flippers in your circles, you can ultimately run into the one who is suitable.
5. Never buy houses in wrong neighborhoods
Among many things, the location of the house matters the most. Just by picking a low-value market is not going to aid you in the process. Instead, it will make things ugly for you. So, what you ought to do is find reasonably well market that is lucrative in terms of profit and safer in terms of investment – where people truly want to live.
6. Learn some nitty-gritty of repairing
To avoid some of the costs of repairing, the best practice is to lend your hand to it. For example, learning how to fix a bathroom shank cannot be that difficult, and yet it will save you a few dollars.
7. Don’t over-renovate
The extent of the renovation of your fixer-upper should only be dependent on the way other houses are in the neighborhood. If you over-renovate, that would likely repel a medium-class buyer when he’s looking for a reasonable house in the medium-class neighborhood. Therefore, don’t over-renovate.
8. Invest in less costly finishing touches
Certain things, like adding a doorbell, or a nice faucet in the kitchen, are not going to cost much; however, they’re going to pay off more once you have buyers at your doorsteps.
9. Don’t waste time
Remember: the more time you spend on renovations, the more you’d face over-head costs like utilities and taxes. So, to avoid this, quicken the process. Invest in your marketing plan and have your house listed as soon as possible.