With the pandemic having turned the working world upside, many people have gotten creative when it comes to their career and income goals. With so many traditional jobs being laid by the wayside, some folks have decided to take a leap of faith to pursue their dream jobs--one of them being property flipping. With the end of the foreclosure moratorium in 2021, the number of defaulted mortgages are sure to increase and with that comes more distressed properties entering the real estate market. If you have a head for numbers, an eye for detail and don't mind hard work, you may benefit from entering the property flipping market. Here are a few items to consider before you start dabbling in property flipping.
Would You Dabble In Property Flipping?
Picking The Right Location And The Right Property
As of this writing, states with the greatest increase in foreclosure month over month include North Carolina, Utah, Georgia and Michigan. If you happen to reside in a state with a high foreclosure rate, you can work with a realtor to help you find distressed properties using the MLS (multiple listing service). When looking at neighborhoods, you'll want to keep in mind the following: school district, length of a typical commute and crime statistics, These factors will matter when flipping a home regardless of whether you decide to sell or rent and will help to attract the right buyer or tenant.
When looking at specific properties, be sure to avoid homes with mechanical or structural issues and try to focus on homes that mostly need cosmetic work; after all, the more money you sink into rehabbing the property may affect your bottom line. Additionally, no matter how good it sounds, don't ever agree to purchase a distressed home sight unseen. You'll want a professional inspection (which may also be a requirement for your mortgage) to identify any issues with the home and to help you to gauge improvement costs. If this is your first flip, start small. You don't want your first rehab to be overwhelming.
Find The Right Mortgage
There are plenty of lenders who cater to property flippers, so do your best to ensure you've found the right one for your needs. If you're working with a realtor, they can help direct you to reputable "fix and flip" lenders they recommend. Make sure you secure funding lender with a lender that offers competitive rates to prime borrowers--some hard money lenders will also negotiate a deal where the they gets a percentage of the profit in exchange for a lower down payment--an attractive option for many first time flippers. You'll also want to consider the numbers involved in obtaining your mortgage--from commissions to closing costs as those numbers will also factor into your bottom line.
Finding The Right Finishes
Having a good eye for design is important if you can't afford to hire an interior designer to help with your rehab project. You'll want to find affordable, modern-yet-neutral finishes for your home that fit the style and vibe of the home. While features like the roof, furnace and water heater are important, don't skimp on finishes (or appliances). There are many features of a home that have a high ROI (return on investment) for little money, such as a finished basement or a new deck or patio. To give you an idea, converting an attic into a bedroom has a 93.5% ROI and the ROI on new landscaping? 100%!
When looking at a foreclosed home that needs some TLC, the windows and doors are often the ones that look the most tatty. Entry doors have more of an impact on the home than you might think. It's ultimately the first impression for visitors and passers by. Be sure to find a door that is attractive, durable and can withstand the elements. Security as well is of utmost importance.
Selling, Renting Or Moving In?
If you purchase a property with the intent to flip it, then it's best to stay that course, especially if you have worked any special considerations with the lender, as mentioned above. Whether you rent or sell is up to you (and perhaps the market). Many property flippers will rent the home on a short term basis while it's on the market, which can be extremely helpful if you can't unload the property before the first mortgage payment is due. Whatever you decide to do, keep your eye on the real estate market and work with a realtor who will price your home correctly.
Having a good eye for design is important if you can't afford to hire an interior designer to help with your rehab project. You'll want to find affordable, modern-yet-neutral finishes for your home that fit the style and vibe of the home. While features like the roof, furnace and water heater are important, don't skimp on finishes (or appliances). There are many features of a home that have a high ROI (return on investment) for little money, such as a finished basement or a new deck or patio. To give you an idea, converting an attic into a bedroom has a 93.5% ROI and the ROI on new landscaping? 100%!
When looking at a foreclosed home that needs some TLC, the windows and doors are often the ones that look the most tatty. Entry doors have more of an impact on the home than you might think. It's ultimately the first impression for visitors and passers by. Be sure to find a door that is attractive, durable and can withstand the elements. Security as well is of utmost importance.
Selling, Renting Or Moving In?
If you purchase a property with the intent to flip it, then it's best to stay that course, especially if you have worked any special considerations with the lender, as mentioned above. Whether you rent or sell is up to you (and perhaps the market). Many property flippers will rent the home on a short term basis while it's on the market, which can be extremely helpful if you can't unload the property before the first mortgage payment is due. Whatever you decide to do, keep your eye on the real estate market and work with a realtor who will price your home correctly.
We hope you've found the above advice helpful (and possibly enticing!). However, we would be remiss if we didn't mention that we strongly suggest you do your due diligence before venturing off into the world of property flipping. Study the market, take a real estate course or two and join message boards and REI groups online to learn as much as you can. Who knows? Maybe you'll get lucky enough to find a partner or two to work with!
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