The real estate market is once again on the rise and now is the time to jump in and make a profit. The hottest trend right now is fixing and flipping homes. You might have seen the home improvement shows on TV showing the glamorous side of the fix and flip business, but the truth is it takes more effort than a 30-minute program can show you. There are a lot of costs, responsibilities, and frustration involved in fixing a home.
Here are just a few of the expenses you’ll contend with in order to achieve your dream in the fix and flip business.
Determining Your After Repair Value
Before you even purchase the home, you should determine the after repair value of the home, or ARV. The easiest way to do this is to compare it with other properties in the surrounding neighborhood. If you’re not savvy in real estate, consult a realtor with access to the Multiple Listing service to help you determine the value. Only consider homes that have already been sold—if there are a lot of homes in the surrounding area still up for sale, this may be a red flag and you should look elsewhere.
Assessing Financial Costs
One of the most difficult parts of flipping a home is finding the right financing. It’s critical that you find the perfect finance option that suits your goals and still allows you to make a profit. For the fix and flip business, it’s difficult to obtain a conventional loan unless you are a much larger flipping business with proven experience. If you’re a first time flipper and you want money fast, try a hard money loan. Hard money lenders don’t care about your financial past, history of foreclosures, income, job, or credit debt. Instead, hard money lenders care about the potential value of the home. Hard money borrowers get their loan application approved quickly and they can receive funding in a matter of days. If you want to outmatch your competitors, have a hard money loan ready to take care of the cost and get started on your project.
Determining Renovation Costs
Renovation costs are the most expensive part of the fix and flip process–after all, you bought the property to raise its value so you can sell it for profit. Unless you’re a real estate mogul or contractor, you may not have the skills you need to execute every project. It takes more than being handy with a wrench, so hire a contractor to help. It may cost money, but a contractor will save you time and effort by building what you desire up to code. A good contractor with experience helping home flippers will understand that and transform your property into a money-maker.
Insurance Costs
Even if you have a hard money loan and you plan to sell your property within the year, you should always get home owner’s insurance. Keep your home safe in case of a fire, storm, earthquake, or whatever your area requires. Another thing to consider is construction. Any renovation project comes with its fair share of hazards and risks, so make sure you’re protected in the case of an accident. Prepare yourself by taking insurance through an LLC to keep your property protected.
Understanding the Real Estate Market
Understanding how the real estate market works is crucial to your success as a fix and flip investor. If you haven’t already, study up on real estate education materials, take classes, and even attend real estate seminars to get you on track. The fix and flip market is risky business, so you can never educate yourself enough to learn the ins and outs of the real estate world.
Becoming a fix and flip investor isn’t always glamorous, but you have the potential to become a success. Consider these costs and become real estate savvy so you too can make it big.