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The real estate market is full of diamonds in the rough – simply waiting for the right person to see their potential. These properties are a few quick fixes from becoming some of the hottest items on the market, but how do you find them?
The fix-and-flip method is a well-known strategy in real estate investment for turning a quick profit on a property in exchange for taking the time to improve and repair it. However, not every property is ideal for a flip, and the timing is not always right. So, how do you figure out exactly which properties you should fix-and-flip and when to do it?
However, before we dive into the world of fix-and-flip real estate, click the link below to book a free strategy call to discuss getting the right financing for your flips and more.
Understanding the Local Market
Before buying any property, you have to know the market you are buying into. A $300,000 home may be absurdly cheap in one area, but that same price would be considered incredibly expensive in others. You need to ask yourself the right questions such as:
- How much are homes selling for on average?
- How fast are properties selling?
- What type of property is selling the fasters?
- How much have property values changed?
Sometimes, despite visible room for improvement, the house is listed on the higher end of what property is selling for in the area. This means at the end of the day; you may not be able to break even on the cost of renovations, let alone turn a profit that makes the property worth your time. As well, some markets move slower than others, so you may run the risk of being stuck holding the property for longer than you planned to with zero income coming from the property in the meantime.
Find the Right Agent
A smart investor should always turn to an agent who is also an investor. Finding a real estate agent who knows the market you are buying into both on a professional and personal level is key to making sure you do not waste your time on an expensive failure.
As well, an experienced agent will be able to aid you during the research period and help you find prime real estate that is full of untapped potential.
Inspect the Property
If you are intending to fix-and-flip a property, you have to know everything that needs updating before you buy it. Otherwise, you stand to lose money on sudden, unexpected repairs or total overhauls on major systems within the home.
Most people would not think twice about a little chipped paint, and some worn out baseboards. However, those can be signs of a moisture leak inside of the wall – meaning there may be a significant risk of mould in need of removal. These types of problems are easy to miss but come with price tags that can extend into the tens of thousands of dollars in some cases.
However, these problems can be avoided by hiring a good property inspector to do a detailed inspection of a unit you plan to purchase. After they finish their inspection and tell you about any problems with the property, you can then determine whether or not it is worth your time and money to invest into it.
Discover How To Flip A House With This Step By Step Guide
Do the Math Before You Fix-and-Flip
Flipping is a serious undertaking for investors. There are plenty of opportunities for seemingly small issues to be met with hefty price tags and permit fees. Even smaller updates and repairs can add up to a noticeable cost once they are all considered. That is why it is important you do the math before beginning your fix-and-flip.
After you have had a property properly inspected, you should take inventory of the updates and repairs you plan to introduce to the property and how much each one is expected to cost. Then, you need to add that total onto the purchase price of the property to determine exactly how much you would need to sell the property for to break even.
After that, try to determine an estimate as to how much the property would need to sell for in order for you to consider it a worthwhile investment – after all, breaking even is not a worthwhile way to invest, you want to make money. Finally, you need to compare your desired selling price and total flipping cost to the expected final sale price in today’s market. If these numbers do not align in a way that satisfies you as an investor, you may not wish to select that property to fix-and-flip.
Figure Out Your Fix-and-Flip Financing
One final factor that cannot be forgotten is your financing. Without a plan for how you will pay for the entire fix-and-flip, you will not be buying anything. That is why it is important you do your research and weigh all of the financing options available to you. There are a wide variety of ways to secure financing for a fix-and-flip such as:
The majority of fix-and-flips are done through financing from traditional lenders such as banks and credit unions. However, with unfinished houses you may need another lender since most banks do not lend on unfinished properties.
Home Equity Loans
Hard Money Loans
If you truly need to, you do have the option to take out a hard money loan to fund your next flip. However, cash loans often carry higher interest rates, so you need to be wary.
If you have the cash available to pay for your next fix-and-flip by yourself, you are free to do so. However, for the vast majority of people, this is not possible.
It is important to figure out what is your best option for financing before buying any property. To reach a wide array of experienced lenders, you can fill out the online mortgage application at LendCity.ca and get pre-approved as quickly as possible. Or call LendCity at 519-960-0370 Alternatively, click the link below to book a free strategy call with our team at LendCity today.