If you are serious about getting into the house-flipping game, it’s important to make a number of preliminary preparations in order to reduce your risk. Two important activities you should undertake are market research and lender selection.
Research the Market
You will need to narrow your focus to neighborhoods that offer profit potential based on your budget. Some of the items to research include:
- What are the hottest neighborhoods?
- How long is it taking to sell properties in the neighborhood?
- Which types, layouts and sizes of properties are moving the quickest?
- What is the average home sale price?
- How are bank REOs priced? (REO stands for foreclosed real estate owned by a bank and which didn’t sell when the bank tried to auction it)
You need to invest some shoe leather walking through as many open houses as you can find in the neighborhoods of interest. Also, spend some quality time with local experts who know the economic state of the community, including qualified real estate agents. Input your findings into your math calculations to see if flipping is feasible in a particular neighborhood.
Select Financing Method
If you’ve got a wad of cash in the bank and can afford to buy the property outright, more power to you. The only interest cost you’ll encounter is the amount you’d earn if you left the money in the savings account, which nowadays is nil. Here are the other popular options:
- Hard money loan: Available from commercial real-estate lenders, this is usually the fastest way to obtain financing, a very important feature during times when newly available properties are being snapped up quickly. Typically, you put up about 30 percent of the property value, and the lender provides the rest. Hard money loans are based on property value, not borrower creditworthiness, so it’s a great alternative if your credit rating isn’t the best. Contact Specialty Lending Group for all the details.
- Bank mortgage: This is usually the cheapest route, but normally takes way too long to arrange, especially in a hot market. Bank financing is available only for customers with the highest credit ratings. Many feel it doesn’t make sense to take out a 15- or 30-year mortgage for a short-term investment. We agree.
- Home equity line: You might be able to tap excess equity in your own home. This presupposes you have a great deal of equity and that you are willing to risk it.
- Private money: Some well-heeled friends or acquaintances might be willing to partner with you on a fix-and-flip deal. Beware of personality difficulties and cumbersome legalities.
Whichever one you chose, finalize your source of funds beforeshopping for property. Remember, speed is key in today’s hot fix-and-flip market. If you ask around, you’ll quickly learn that the services of a good hard-money lender are indispensable for success. If you are planning a fix-and-flip project in the Greater