Before you purchase a fix and flip property, you must consider all angles of your investment. What will it cost to purchase? How much work does it need? Will the home be easy to sell? Watching television shows can give you the impression that flipping houses requires no more than a few stressful days. However, the process is much more complex than this.
Below are the questions to think about before purchasing a flix and flip property.
How Much Work Needs to be Done?
What condition is the property in? Some fixer uppers need basic attention such as paint on the walls and new countertops. Others need a complete rehaul. Obviously, the fewer issues the home has, the faster and easier it will be to get on the market. If the home does require a major rehab, be sure you have the time, patience, and resources to handle it. You can help out with small jobs, but larger ones might need to be handled by a pro.
What is the After Repair Value?
The After Repair Value (ARV) is the value of the home once it is rehabbed. This number is the most important to look at because it tells you if you will see a profit. Let’s say the home you’re interested in is $100,000 and needs $50,000 in materials and labor. If comparables in the area go for $200,000, you can make a $50,000 profit. If, however, you need $75,000 in rehab costs, you will only be making a $25,000 profit. At this point, you have to decide if it’s worth it for you.
How Will You Get Funding?
Getting traditional funding is difficult for a property that needs work. If you don’t have your own money to invest, you do have options. Private lenders are your best choice because they have flexible terms. Obtaining a hard money loan is a quick process, and you can borrow more than you would be able to with a bank loan. If the experience is positive, you and the lender can work together in the future.
There is a lot to think about when flipping houses. Always think the purchase through, as you don’t want to be stuck with a property that requires a ton of work in exchange for a small profit. Go for the properties that you can turn around quickly and take advantage of new investment opportunities.
