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If you’ve seen one of the many house flipping shows or YouTube channels lately, you may have caught the flipping bug. TV and YouTue make it look easy. They purchase a property, fix what’s broken, turn a dump into a dream home, and walk away with a six-figure profit in minutes.
What does it take to be a successful house flipper? Well, a fat bank account and generous lines of credit certainly don’t hurt.
But what about the personal attributes? There’s more to flipping than just purchasing and renovating homes for big profits. There are personal skills and attitudes that are vitally critical to the process. Let’s take a look at a few of those qualities.See if you can be approved for fix and flip financing.
You need to be a risk-taker
No matter what you see on TV, or read in how-to-get-rich books, flipping houses involves a tremendous amount of risk. You need to have the type of temperament that’s comfortable taking on that risk.
There are all kinds of risks connected with house flipping. The first is that you may not be able to sell the property and make a profit. You may even lose money. This can happen either when you pay too much for the property initially, underestimate the repairs required, or run into a major unexpected problem that you haven’t budgeted for.
The second is that you might get caught in a market downdraft, and be unable to sell the property quickly. The problem here is that your money will be tied up in one property, leaving you unable to move on to the next deal.
There’s a workaround for each of those situations, but you have to have the appetite for risk that they require.
Hands-on renovation skills
House flipping is not an armchair venture. If you are going to “sub out” all of the work to professional contractors, you could go broke renovating a property. You’ll have to have the ability to perform at least some of the renovation work yourself.
That can be a single skill, such as plumbing or electrical work, or it can be general skills, that enable you to perform a little bit of each job. The more work you can do yourself, the less it will cost you. Labor costs are downright astronomical.
- 6-24 Month Terms
- 620 Min. FICO
- Up to 70% ARV
Eye for a bargain and hard-core negotiating skills
It’s probably true that the single most important step in a successful flip is getting a property for the right price. That means getting it well below market value. Many experts agree that you need to buy a property at 70% of the after-repair value (ARV) minus repair costs.
So if a home could sell for $200,000 after $30,000 in repairs, you should only pay $110,000 for it. That’s nearly half-price. You better find the right home and be a great negotiator to get that deal.
Intimate knowledge of the local real estate market
To be able to get a bargain on the house that you will purchase, you will have to have a thorough knowledge of the local real estate market. It can take years to acquire that knowledge. If a home will sell for $250,000 in one neighborhood but only $230,000 across town, that could mean the difference of making or losing money.
You can work with local real estate agents and appraisers, but there’s no substitute for knowing the market. That’s the only way that you’ll be able to make an informed decision that will lead you to buy a property that can be flipped profitably.
You need to be familiar with financing options
Should you get a loan that is designed to flip houses, a home equity line, borrow from a 401(k), or bring in an investor?
A successful flip starts with the right financing. Without it, you can’t even get started.
Not just any lender can approve a loan for a run-down property or finance repairs. But some lenders specialize in it and are quite flexible if you bring them the right deal.
Knowing your financing options puts you ahead of amateur home flippers.Check your home flipping loan options.
You need patience
Patience will be necessary when it comes to finding the right property to flip. Buy the wrong property, and you’ll lose money. You’ll have to have the patience to take as long as necessary to find the right ones.
But once you purchase the property, your patience will need to run out.
Speed in turning over properties will be critical. That’s because each property you purchase will become a capital trap. You will have money invested in the purchase of the property itself, as well as the renovations. But you will also have property taxes, debt service, insurance and utilities along the way. The longer that you hold a specific property, the more it will cut into your profits.
So, it’s patience on the way it, and a lack of patience on the way out. Take your time finding the right deal, but then be ready to move quickly once you do.
You need to know remodeling trends
Should you use brushed nickel or black hardware in the kitchen? Will traditional or modern sell for a higher price in your market? You need to make the home appealing to your target potential buyer to get top dollar.
Knowing trends in kitchen, bathroom and general home remodels will be key to dialing in the home and making it something the new owners will be proud to show off to friends.
There’s a lot more to house flipping than having cash and generous lines of credit. Sure, you need both. But you also need those “soft skills” that can be the difference between success and failure.Start your fix and flip financing here.
Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.