It’s strange how different players in real estate talk about house flipping, but reflect very little about the actual process and outcome. You see a happily married couple secure a home, invest money in fixing it up, and then sell the property for thousands of dollars in profit. Consider this for a moment: if it were that easy, wouldn’t everyone jump on board?
Flipping properties can be a lucrative opportunity, but it is not without risk. There are a few things you’ll never learn no matter how many episodes you binge-watch. You must research to comprehend the concept of house flipping fully. Here are a few basics to get you started.
The Process Is not as Easy as it Appears
If you expect to find a property, fix it up, list it for sale, and sell it in a few months, you’re setting yourself up for failure. The reality is that flipping a property takes time. Locating properties, negotiating an offer, developing a plan, hiring contractors, completing improvements, marketing, and eventually selling the property all take time.
It will help if you also account for unforeseen events that may cause your timeline to slip even further. So, if you want to make thousands of dollars in six months or less, this might not be the business for you.
You Need to Involve Other Players
You’re in for a rude shock if you think you can handle the roles of a real estate agent, home inspector, contractor, or attorney on your own. While some tasks are simple enough to complete on your own, you will require the assistance of experts to achieve your objectives. You must outsource significant tasks to professionals, whether you ask for referrals, conduct an online search, or use available resources.
Contractors are educated, trained, and experienced in transforming your property into a safe and efficient home for potential buyers. You save time, reduce the risks, eliminate unnecessary missteps, and increase your investment property’s value, comfort, and aesthetics. After reading a few reviews, you will understand how valuable a contractor is to investors and homeowners.
Profitability cannot Be Guaranteed
Although you start property flipping to make a profit, there is no guarantee that this will happen. You can get a good deal on the house, invest in repairs and renovations, and price it competitively on the market and still not make a dime. Some investors break even or lose money.
There are numerous potential pitfalls. During renovations, your contractor may discover a larger issue that will cost you more money. A potential economic downturn may trigger a drop in buyer attention, resulting in your property sitting on the market for months. Who knows? You could put a lot of money into the property but only get low-ball offers. Although accepting the offer reduces your cut, it is far less painful than owning a property that will not sell—prompting you to accept any offer reluctantly.
Financing Options
As a novice house flipper, you are understandably concerned that you may not have enough funds to implement this strategy– after all, you must purchase a real estate property. To allay the fears of new real estate investors, here are some options for financing house flipping.
Hard Money Loans
Because most first-time house flippers lack sufficient cash and conventional mortgages do not apply to such short-term real estate investment strategies, you can turn to hard money lenders. These are specialized financial institutions and companies that make short-term loans to various types of real estate investors, including house flippers. As a result, interest rates on these loans are significantly higher than conventional mortgage loans. Nonetheless, the total interest amount is insignificant because the loan term is short. Real estate property serves as collateral for hard money loans.
Private Money Lenders
Similar to hard money lenders, private money lenders are individuals. This is a real estate investor looking for a completely passive way to make money in real estate and thus lends money to other investors to buy, fix up, and flip properties. This could be someone from your networks, such as a family member, a relative, or a friend. Private money lenders’ terms are more flexible than hard money lenders’, allowing you to negotiate the loan period and interest rate.
Real Estate Partnership
Forming a real estate partnership is another arrangement that is similar to borrowing money from a private lender. In this arrangement, you will do the legwork for purchasing, repairing, and selling a property, while the other partner or partners will finance the transaction.
Cash or Savings
If you have enough cash in the bank, flipping a house can be a quick and low-risk way to increase your cash.
You can’t flip houses with no money. Finding a good financing source, such as a hard money lender, a real estate partnership, or any other mentioned above, is essential.
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