The world has become aware of this popular trend. While we’ve spoken about the mistakes you should avoid when flipping a home, we didn’t share with you the step-by-step process of fixing and flipping.
So today, we’ll be guiding you through what the process looks like.
Do Your Research and Understand the Housing Market
The first part of fixing and flipping is learning the state of the housing market. If the housing market is leaning towards a buyer’s market, you want to wait to fix and flip.
However, suppose the market is in a neutral or seller’s market. In that case, it’s a good set of circumstances for you to purchase a home with the intent to put it back on the market within 12 months.
To begin, you want to go on MLS listings and scan the possible homes you can see yourself repairing. As you research for a home, keep in mind the community it resides in too. Many people will not consider a nicer home if it’s located in a bad area.
You will want to use the 70:30 rule when purchasing an investment property. Essentially, you’ll want to pay no more than 70% of a property’s after-repair value (ARV) minus the repair costs needed in the renovation.
Following this rule will help you achieve your business goal of making a profit.
Financing for an investment real estate property can be extremely challenging. Most lenders will not finance a home an inspector finds severely damaged or uninhabitable.
Most flippers have to take out a fix-and-flip loan with a higher interest rate. These loans are often short-term. You can get a fix and flip loan from crowdfunding platforms or private money lenders.
And while you may have a smaller upfront out-of-pocket financial commitment with a house-flipping loan, it’s important to understand some of your potential cons.
- Recurring fees and payments for as long as you own the investment house
- A negative impact on your credit for late or missed payments
- Associated higher interest rates for house-flipping loans
- It may require you to put down equity or collateral to secure the loan
Set the Foundation
Once you’ve obtained the home, you can start examining the aspects of the house that need to be repaired. A good approach is to not make any unnecessary repairs.
Examine the key ticket items of a home: roof, foundation, electrical, and mechanical systems. If you have money left in your budget, you can remodel the kitchen and bathrooms.
Generally, you want to prioritize the necessary repairs before the unnecessary. Always remember you’re repairing the home to sell it, not to live in it.
Tip: Make sure you have a business plan on hand that contains your budget for the home. Include the price you brought the home, the amount of money for repairs and labor and a conservative estimate of what you plan to sell the house for.
Find the Right Team
Now here comes the tricky part. Unless you’re confident you can do the repairs on your own, you’ll most likely be hiring outside (contractors and designers). Now you can consult real estate agents, property managers, or builders to find great contractors in your area. Or you could try and find one on professional listing sites like Angi.
Your contractor should provide you with a list of their previous work, and they should be able to offer you a “bid” (or price) for the work you want to do. Make sure you review their references and ask their former clients how the contractors did with deadlines, budgets, and their quality of work.
You want to find tradespeople that can meet deadlines and expectations with an agreed-upon budget. With flipping, the longer the construction takes, the more money it will cost.
Tip: Don’t take the contractor with the lowest bid. It might be tempting, but you want to hire a contractor you know can do the job well, someone other than the one who’ll do it for the lowest price.
Decide on the Approach You Want to Take
Now, here’s the next tricky part. You can decide whether you want a more hands-on or laid-back approach. As far as contracting work goes, you want to leave that to the professionals.
But if you want to say how the final look of the house is, you can work with your designer to figure out how the home should look. You can work closely with the designer or only ask for updates and get an idea of what the designer would like to do with the floor plan.
Tip: While leaving the work to the professionals is safe, you shouldn’t be afraid to check on the home’s progress. Always keep an eye on the property to see if everything’s on track and within budget.
Sell Property with a Realtor®
When all is finished, then it’s time to sell your property. You’ll want to have a good Realtor® by your side when you’re doing this. The agent can help with marketing, price strategy, and lining up clients to match up with your renovated house. A Realtor® will be knowledgeable about the neighborhoods and the current pulse of buyer preferences.
And there you have it! That’s a step-by-step guide on fixing and flipping homes. Remember that with all investments, there are risks.
If, for some reason, you are unable to sell the property. You can always keep the home as a long-term rental or have it as an Airbnb.