Better Homes and Gardens Real Estate Life

Tag: House Flipping

  • How to Flip Houses as a Side Hustle

    It’s hard to miss the cultural movement of home improvement that has swept the nation in the last decade or so. Countless television shows teach beginners how to DIY everything from bathroom cabinets to renovated basements, and the hosts of such programs have become household names. Learning how to flip houses for beginners is a bit more complicated than you might expect, however.

    Still, now is a great time to learn. Thanks in part to stay-at-home orders and the increasing popularity of telecommuting, there’s never been a better opportunity to put your thinking cap on and acquire skills that can help you invest in properties to flip. Equal parts challenging and rewarding, flipping homes as a side hustle can be a lucrative pursuit. It also requires a great deal of effort and planning.

    Consider Your Location

    Where you live, or where you plan to purchase your first investment property, matters. Southern Living explains that some cities, like Tampa, Florida or Birmingham, Alabama, are good places to buy a home to flip. Coastal Living echoes this sentiment, saying that Tampa is the best city on the coast to flip a home. Consider cost of living, the activity in the housing market, and the purchase price of an investment property before you move forward. 

    Don’t be fooled by low property prices. Sometimes, houses are cheap, but you won’t have much luck reselling them once they’re fixed up. Generally speaking, a lower-priced home in a hot real estate market is a good investment opportunity. However, it pays to talk to local real estate agents and contracts for more information before taking the plunge. 

    Similarly, if you’re planning to buy a home in an area popular with seasonal vacationers, but without much local population presence, be prepared to rent the home for part of the year and either occupy it or find a property manager for the remainder of the year.

    Know What You Can Afford

    When you’re first getting started flipping homes, you should have a firm sense for what you can afford before you begin. If you already own a home of your own, don’t overextend yourself financially. Just because a bank is willing to extend your credit or open a second mortgage for you doesn’t mean you should sign on the dotted line if it won’t be sustainable. In many cases, a bank will prequalify you for a mortgage amount far higher than what you can comfortably afford, so proceed with caution.

    Additionally, renovation costs are a critical consideration before you buy a home. Have the home assessed, both traditionally and by a contractor you have vetted. Find out the value of the home, and then let your contractor tell you how much it would cost to get the work done that the home requires. Take this into consideration when making an offer on the home.

    For instance, if you can purchase a house for $150,000, but it will need $100,000 worth of renovations to be reasonably successful on the market, be sure the market in its area will bear a $250,000 home of its type. 

    Realistically, though, you’ll need to expect your renovation costs to far exceed whatever you’ve budgeted for, so add ample space in your budget. Unexpected costs are not just common—they’re essentially inevitable. In addition, you want to make a profit on the home. As such, your $150,000 fixer-upper might really need to sell for $300,000 to be worth your while. 

    Make it a Blank Slate

    When you’re flipping a home or buying a rental or investment property, you should keep in mind that you’re not the one who is going to live there. Part of the joy of house flipping is, of course, pouring your heart and soul into the design and the process as a whole. However, you should avoid major design trends or bold statements in your renovations that would turn off potential buyers.

    Trending ideas, like bold paint colors or a farmhouse kitchen, are certainly very popular. If they’re doing well in your market, it’s okay to consider them. However, once you are done with the renovation process and you’re ready to list the house on the market, or offer it up to renters, the usual rules of selling apply. 

    By allowing buyers or renters to imagine themselves in the space, you’re more likely to make a quick sale. This means clean, fresh looks without too many trending light fixtures or window treatments. Keep things basic and you’re more likely to enjoy a healthy return on your investment in less time.

  • Getting a Loan to Flip a House

    There is an unwritten rule in real estate that stipulates you must not run out of money. For this not to occur, one must do everything in one’s power to secure other people’s money. There are a few ways to hustle for money, but the ideal way is through a loan. Once you secure a loan, you can invest in flipping homes where you can profit handsomely.

    The process of flipping houses is straight forward. This objective is to sell it for more money than invested.

    • Buy a distressed property
    • Clear the house of Its title and taxes
    • Renovate the property
    • Sell the property as a move-in ready home

    The property must be purchased at a low enough price to enable you to invest enough money to renovate the house, enabling you to sell the home at a premium due to its improvements.

    You will want to reduce your financial and operational expenses by securing low-interest rate on the loan and complete the process of flipping a house quickly. Having a work crew ready to start working on the house the very day that you buy it, ensures you will not fall behind schedule.

    The Options to consider when financing flipped houses include either choosing investors who will finance the project or seeking out bank financing. Your decision is based on two concepts:

    • How much money the house will cost
    • The risk involved

    Working with Investors is favorable as it is a direct option to secure money, and you will not need to pay it back all at once. Investors expect a return on their investment, but they are not entitled to monthly interest checks. Instead, the Investors’ return is variable, and it is not expected to pay the investors unless the project makes a profit. The money is considered a “lower risk”, up-front, but a “higher cost”,  long-term.

    Financing the project through banks and mortgage companies is another option of securing money. In the current market, it is ideal to finance flipped houses through variable rate mortgages, as the rates are extremely low. It is important to make sure there are no points associated with these loans as they are non-refundable interest costs. As these loans have a fixed rate, at least for a few years, the interest risk is reduced greatly.

    Straight bank loans with short terms such as ninety days require that the money is paid back at the end of the term. These loans demand that you have excellent credit. Be aware, you must buy, legitimize the title, renovate the physical property, sell it, and close the deal in the chosen time-frame. The period from the sale of the house to the closing can be just sixty days.  A positive note is banks willingly roll the loans over when you have a bona fide buyer under contract. Unfortunately, the interest rates can be eight percent or more.

    Before you jump into the business of flipping houses, assess your cost of money and the risk associated with your debt. It may start off as a lucrative, business adventure, but the reality is that you need an endless supply of money to sustain your investments. In most cases, you will most likely be forced to find additional cash through loans to make a profit in flipping houses.