House flipping is an investment that requires a lot of funding to get a good return on investment and is not for everyone. A house flipper needs to do their due diligence and research before buying. You need to be prepared to live with risk and worry throughout the renovation process. When learning how to flip a house, here are some of the top things to do:
- Research the market/neighborhood you are buying in, drive and comb through neighborhoods that will return the best investment, find the right home, obtain a good estimate on repair and rehab costs and needs, and create a budget based on the needed repairs;
- Secure funding, oversee repairs, oversee renovation, oversee inspections, and prepare a marketing strategy;
- Meet with prospective buyers; and
- Ultimately, make a sale.
What Is House Flipping?
Before you start applying for loans for flipping houses, you must understand what you’re getting into. House flipping is when a person or persons buy a house with potential for improvement or “upside” for profit at a discounted price. After the renovation, the house is sold at a higher price, and a profit is gained. Many people who flip houses are in the real estate industry to make extra income, and some make this their primary business. Although this type of business can be perceived as risky, flipping houses can be very lucrative and financially beneficial if it’s done correctly.
The typical types of loans used for flipping houses include:
- Hard Money Loans
- Rehab Loans
- Fix and Flip Loans
- Bridge Loans
- Traditional Mortgage Loans
- Private Loans
- Personal Loans
- Home Equity Loans
- Home Equity Line of Credit
What is The Cost of Flipping A House?
If you dream about white subway tiles or walk into an old, outdated home and immediately see the good bones, then maybe you are ready to learn how to start flipping houses. Yet, you may be wondering, how much does it cost to flip a house? If you are familiar with Chip and Joanna and the Property Brothers, you likely already know the challenges of house flipping. After all, what is house flipping without some trials and tribulations? That said, it is important to understand the financial costs of flipping a house.
Flipping houses is much more than bursting through walls or gutting kitchens. For a successful flip project, prospective house flippers need to first focus on understanding real estate. Some may start with a business plan and look for loans for flipping houses while others may jump right In. However, the first step is to consider the sure estimates of homes before planning the home repairs. Typically, those who get into the house flipping game follow the 70% rule, meaning home flippers should only look to pay 70% of the after repair value (ARV) of a property.
Flipping houses is much more than bursting through walls or gutting kitchens.
Loans for Flipping Houses
If you are currently renovating a commercial property or a residential building and need short-term funding, then a bridge loan can provide you with the capital you need in the meantime. While you are in the process of receiving permanent financing, a bridge loan is a great option to continue your project without any delays.
If you are looking to build a house, you would need a construction loan. Then you would pay the loan off and move on when the house is sold. If you decide to stay in the house after renovating, the loan will need to be converted into a traditional mortgage.
Renovation loans are for when you’re making home improvements on a completed house. They have traditional mortgage rates and appraisals. The renovation cost is built-in because it’s appraised based on the after-repair value (ARV).
A cash-out refinance means you take existing equity out of another home in order to use that equity to invest in another. This could be the cheapest financing option because it’s based on an existing primary lien. Since that house is complete, it means less lender risk.
Loans from private lenders often require existing banking relationships. Banks consider you less of a risk the longer the history you have with them and the assets you have in their system. This relationship may allow for more options and financing terms.
If you are looking to start a home improvement project or need the capital to remodel a residential property, then a rehab loan is a great option. Rehab loans offer quick approval and closing time to help provide you with the capital you need to remodel, repair, or rehab your home in record time!
Fix and Flip Loan
A fix and flip loan is great for those who are in need of the capital to purchase a home with the sole purpose of remodeling and selling the home. These loans are secured by real estate and will provide you with the capital you need to jump on the opportunity to remodel and flip your home.
A personal loan means that there is no collateral involved. It also means you can get your money in as little as a day or so. The downside is that the interest rate is higher than it might be for a mortgage.
Home Equity Loan
A home equity loan is for people who want to make use of the equity they have in their current home. They use the equity to invest in a property flip. This way, they don’t touch their primary mortgage. It acts as a second mortgage and requires a separate monthly payment. The downside of home equity loans is that rates tend to be higher than primary mortgages.
Home Equity Line Of Credit (HELOC)
HELOC loans use your primary home as collateral. A revolving credit line is available based on the equity in your existing home. There are two phases. The first is a draw period, and then there is a repayment period. The draw period has a time limit to it, and you pay interest on the portion of the line of credit that you’re using. You can also pay back into the HELOC at any time. This allows you to draw more out later for your next project.
Pros and Cons of Flipping Houses
- Allows for the potential to maximize ROI
- Provides more insights into your local market
- Poses less risk compared to other types of real estate investing
- Excellent for people with high skill levels
- Users can gain useful real estate experience
- Unforeseen costs could arise, and they could be high
- May need costly outside help and support
- Will require in-depth knowledge of the local real estate industry
- Can require intense planning and budgeting
- Potential to lose money on your investment
Finding the Right House to Flip
The best way to find the right house and make sure you are doing your due diligence before you purchase is to get the facts about market trends and areas before purchasing the house. Do research so that you have a good understanding of the properties that are being purchased and what are do they have in common. This will help you judge if you are purchasing the house in the right neighborhood, and it will have a good resale. You also want to understand trends in renovations and popular features buyers are looking for.
Steps To Help You Start House Flipping
There are several steps you can take to be an expert in flipping houses, and that will guide you to be a successful house flipper.
- Get your real estate license
- Get access to the MLS
- Do your research
- Set a budget
- Purchase a house
- Obtain permits
- Renovate the house
- Marketing the property
- Sell the house
The Bottom Line of Flipping Houses
House flipping can pose a risk to any investor. If a person chooses this route, they need to set up guidelines and plans to make sure that the investment is being well managed and cost-efficient. But if done correctly, high ROIs of up to 40% can be enjoyed. Now that you’ve learned more about how to start flipping houses, consider a loan from HardMoney Company. Apply today and begin the process of flipping a house.
If you want more information about hard money loans or flipping houses, contact HardMoney Company, today!