HGTV reality shows make it seem as though all you need to successfully flip houses is a little cash and a lot of guts. Well, you do need both of those things, but there’s a lot more to it.
Read below for our four essential tips for success when flipping your first home.
Success Rule #1 : Funding
To flip a house, you’re going to need cash. That cash can come from you, a bank, or better yet, other people. If you have money of your own to invest, then you’re already ahead of the game. If you don’t have any cash, that’s OK too.
There are 3 ways to fund a real estate transaction; private investors/cash, traditional financing (banks/mortgage brokers), and private lenders (hard money). Unless you have a lot of cash on hand, financing is needed. Traditional banks are not typically in the business of short-term lending because their business model is long-term to collect interest over time. Banks do not make money at low interest rates over a few months. Additionally, banks do not like to lend on distressed properties.
To fill that gap, private lenders (commonly tabbed “hard money”) are necessary to enable a transaction to close. These types of lenders charge higher rates and fees than a traditional bank because they are short-term – however, they offer greater flexibility. Hard money lenders will fund distressed properties, borrowers with bad credit, and will not focus on borrower financials or debt ratios. Rather, these lenders focus on the value of the property which is why they can offer more creative loans.
Not all hard money lenders are the same. It’s not uncommon to find a company calling themselves a hard money lender when they are really just a broker, therefore it is important to find a direct lender who funds the loans with their own money.
Universal Capital is a direct lender utilizing cash in a bank with no delays. They also set aside escrow funds so that when a borrower needs a draw the funds are available immediately. While most lenders will tell you how great their customer service is, Universal Capital proves it with their high ratio of repeat borrowers and commitment to client success.
Success Rule #2: Build Your House Flip Team
House flipping cannot be done alone – there’s just too much involved for you to know everything about all aspects of real estate investing. This is why you’ll need to build your own team of specialists who you can rely upon for expert advice and expertise to ensure maximum profits.
Some of the members of your team should include real estate agents, a real estate attorney, a CPA, a general contractor, a designer or architect, an insurance agent, a wholesaler, and a private money or hard money lender.
This team will assist you in all the little details of finding, fixing, and then ultimately selling the property – helping you to lock in profits and keeping you out of trouble at the same time.
Success Rule #3: Find an Undervalued Property
Finding an undervalued property in this market can be a challenge. With foreclosure rates down and bank owned property inventory drying up, there is a shortage of inventory compared to just a year ago.
Other ways to find houses to flip include email marketing to property owners, direct mail marketing to absentee owners, and contacting abandoned property owners from town record data.
Success Rule #4: Speed Equals Profit!
Time is of the essence in house flipping and speed is one of the biggest factors that will lead you to profit. The shorter the time you hold onto your investors’ money, the higher your profits will be!
The reason your profits diminish with time is that the longer the renovation takes to complete, soft costs such as financing payments, insurance payments, town taxes, utilities, and any and all other carrying costs start to add up. The more these add up, the more they diminish your profits. So do the job well, but do it fast.
Although it may seem counterintuitive, having a rapidly appreciating market is not a necessary ingredient for success in house flipping. You can – and will – make profits flipping houses in rapidly appreciating markets, stagnant markets, and even in markets that are even depreciating.
For more information on how to get started flipping your house, or to hear more about creative hard money loans, reach out to Universal Capital today.
House Flipping School / Mike Cava : goo.gl/Kubg1T
Bigger Pockets : goo.gl/nusFS