For someone new to buying and flipping real estate, the entire process can seem a little confusing. Sure, there are many important facets that need to be understood in order to be successful, but the overall concept really isn’t that hard to grasp. In fact, most of the knowledge that helps develop successful investors comes in the form of first-hand experience.
If you’re thinking about getting started with fix and flips, then these eight are main steps for flipping real estate that you need to focus on:
1. Find the Right Property – The success of your investment begins, and can end, with the property you choose. Being “cheap” doesn’t necessarily make a property a good investment, but sometimes the most affordable ones can provide the largest upside. Most fix and flip investors aim for properties with cosmetic or minor damages that are relatively easy to fix but can offer huge gains in the home’s value.
2. Get It Appraised – When you’ve found a property that looks like it may just have investment potential, get an accurate idea of how much it would be worth in presentable, market condition. This could be done through an appraiser or real estate agent if you’re working with one. Until you become more familiar with your local real estate market, basing a purchase off of an inexperienced estimate could wind up being costly.
3. Establish a Budget – If it looks like you have a promising margin between the property’s current value and after-repair value, talk with a contractor to discuss the costs to bring it up to speed. An accurate budget can make or break a project, so be sure to seek the aid of someone experienced in working with investors
4. Double-Check the Numbers – Before making any major financial decisions, be sure to go back through and double-check the numbers. Plan for multiple scenarios such as a longer-than-anticipated holding period or budget overrun, and make sure these troubles would not result in disaster.
5. Find Obtainable Funding – Once everything looks good on the property and you’ve gotten it locked up under contract, the next step is to find funding. If the home is in poor shape or needs more than just basic repairs, many traditional lenders may deny your application. Popular options for many fix and flip investors include lines of credit on their existing debt-free real estate and short-term hard money loans.
6. … That is Available Fast – When considering financing options, you also want to consider how soon the lender is able to provide you with funds. Investing in real estate is a great way to build wealth, and many people are beginning to get back into the market. That means that the most profitable properties could be getting attention from a number of different people, making it important that you are able to close the deal as quickly as possible. This is another reason that hard money loans are growing in popularity – they can often be funded in as few as seven days.
7. Fix & Sell It – Congratulations! You now own investment real estate and are well on your way to seeing healthy profits. If you’ve taken care so far with the previous steps, all that’s left is completing the planned repairs and finding a buyer. Expect a set-back or two to arise along the way – they always do – but you should be fine as long as you planned for the various common hazards.
8. Look for the Next Investment – Finally, your first fix and flip property is sold and you’ve pocketed a sizeable amount of cash. What now? Take some of the profits and reinvest them back into your real estate business. Begin the process back at step one, but this time with all of the knowledge and connections you’ve gained from the experience.