If you watch cable television, you’ve probably seen countless real estate “flipper” shows. In a strong housing market, the right property can be an amazing investment. But before you go planning how you’ll spend your profits, you need to…well…find, fix and flip. So, how do you find properties that make financial sense to invest in? Here are five tips on how you can locate distressed properties that can be renovated and resold for profits.
- 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.
- 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. But, don’t limit yourself to a single source to find investment properties – you should utilize them all. Other places to look include:
- Local MLS listings
- HUD-owned properties
- Trustee auctions
- 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 availability of and margins on these types of properties are generally very small. To secure the best deals and make the biggest profits, seek out homes that need some work to achieve their true after-repair value. Often, the properties that offer the most significant upside are the ones that are in great condition structurally, but have cosmetic issues preventing them from realizing their true value. This can include outdated interiors or a lack of outdoor maintenance and landscaping.
- Approach Motivated Sellers
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 a good chance at negotiating a favorable purchase price, stick with motivated sellers. These are the ones who, for whatever reason, need to dispose of their properties. These could be banks – who aren’t in the business of owning and selling real estate – or private individuals facing economic hardships. Sometimes they are people who recently obtained real estate through probate, or even a divorcing couple needing to split their assets.
- 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 financial sense. 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, you need to obtain the capital for the project quickly. With fix-and-flips, time really is money. Thanks to hard money loans, real estate investors can obtain short-term financing – many times even for 100% of the purchase price and cost of renovations – and receive funding much quicker than banks can make a loan.