Hard money loans make it easy for real estate investors to get funding for deals when other traditional lending options simply aren’t available. You don’t need to wait weeks or longer for approval, you don’t need to find a problem-free property, and you don’t even need to have a perfect credit score. For the most part, all you need is a great investment opportunity.
But how do you find properties that make financial sense to purchase, fix up, and flip? Here are 5 tips on how you can locate distressed properties that can be renovated and resold for profits.
1. Understand Your Market’s Trends
Right now, the real estate market is making big progress after years of dismal results. Many areas are seeing gains in value and an increase in volume – but not all of them. Even when looking at your city, you’re likely to find that some neighborhoods are performing better than others. The first step in finding a good investment opportunity is isolating which areas in the market have the brightest outlook.
2. Survey All of Your Sources for Properties
Each real estate “guru” will have their own source for finding investment properties that they feel is the most fruitful. Some will tell you to get in contact with the REO departments at local and national financial institutions. Others will tell you to keep a keen eye on classified ad sites like Craigslist. And then some will tell you to post up “bandit signs” on street corners throughout your community.
In actuality, there is no one single source that you should be using to find investment properties – you should utilize them all. Other places to look include:
- Local MLS listings
- HUD-owned properties
- Trustee auctions
- Anywhere else that people are selling, or might be interested in selling, real estateInvestment opportunities are everywhere and limiting yourself to one particular method of finding them will mean missing out on a number of potentially profitable deals.
3. Focus on Cosmetic Issues
A key part of fixing and flipping real estate is the “fixing”. Although there are good opportunities to be had that are already in marketable condition, the available of and margins on these types of properties are generally very small. To secure the best deals and make the biggest profits, you’ll be seeking out homes that need some work to be able to be sold for what they’re truly worth – their after-repair value.
Often, the properties that offer the most significant upside are the ones that are in great condition structurally, but have a number of cosmetic issues preventing them from realizing their true value. This can be anything from outdated interiors to a severe lack of outdoor maintenance and landscaping.
4. Approach Motivated Sellers
Just because you’ve found a run-down property in a nice neighborhood with a positive future outlook doesn’t mean that it will necessarily make a good investment. The saying goes that “money is made when you buy”, meaning that securing a good purchase price is the key to successful fix and flip investing.
If you want to have the best luck at negotiating a favorable purchase price, stick with motivated sellers. These are the ones who have a strong interest or need to dispose of their properties. This could be banks – who aren’t in the business of owning and selling real estate – or private individuals facing economic hardships. It could also be people who recently obtained real estate through probate, or even a divorcing couple needing to split their assets.
There are fewer motivated sellers in the market than there were a few years ago, but they are undeniably still there.
5. Don’t Be Afraid to Pass
Finally, don’t become so obsessed with an opportunity that you’re willing to pay more than what makes sense as an investment. Many times, especially with new investors, the excitement of finding a home that could be a great fix and flip property leads people to be so determined to acquire it that they make irrational decisions.
No matter how much potential a home may have, or how long you’ve searched to find it, don’t be afraid to simply walk away if you can’t come to mutually agreeable terms with the seller – there are always going to be other opportunities out there.
After you’ve found an exceptional fix and flip opportunity and locked it up under contract for a suitable price, financing the purchase and closing the deal should be quick and easily. Thanks to hard money loans, real estate investors are able to obtain short-term financing – many times even for 100% of the purchase price and cost of renovations – and receive funding in as few as seven days.