#fixnflip

Fixing and flipping houses is highly rewarding and not just financially. Taking something old and rundown and turning it into someone’s home is a considerable achievement. While the fix and flip TV shows make it look easy, there are a few things you should know about how to buy your first fix and flip investment property. 

1.      Choosing the right property 

Sadly, the first mistake we see many people making is choosing the wrong property. Emotions get in the way, and investors start looking at properties they like rather than properties that will make a profit. When looking at your first property, it is strongly advisable to seek professional advice. This would include a real estate agent to determine what needs fixing and the property’s value when renovated. You should also have inspections and get quotes from contractors so you can crunch the numbers.

The best fix and flip properties are ones where the homeowner needs to sell a home fast. 

2.      Crunch the numbers 

The sale price and renovation costs are only two numbers that need calculating. Don’t forget to add the holding costs (utility bills until you sell the property), homeowner’s insurance, property tax, capital gains tax, and closing costs. Two rules of thumb to live by, add 10-15% on your renovations as a cushion if things crop up, and always apply the 70% rule. This means you should only pay 70% of the after-repair value (ARV) for your investment property. 

3.      Get the funding 

Things can start to get tricky here. Some lenders are dubious of first-time fix and flip investors due to the lack of experience. The good news is there are multiple sources of funding depending on your situation. Traditional mortgages are an excellent place to start. Still, they often require down payments and only lend up to a percentage of the sale price, leaving you no room for repairs. 

Fix and flip mortgages are short-term loans, usually up to one year. The interest rates are higher than those of a long-term mortgage, but you can borrow up to 75% of the ARV, which ties in nicely with your 70% rule. You may find you need a high credit score for this type of loan. Hard money lenders are another excellent option with loan periods of 12 to 36 months and higher interest rates. Costs of these loans are often reduced as you gain experience. Some hard money lenders will loan you up to 90% of the ARV. 

4.      Create your team 

If you are thinking of doing the renovations yourself, that’s great. Just remember that specific tasks such as electrics and plumbing will require a licensed professional. A successful fix and flip will significantly depend on the team behind you. It’s worth taking the time to find contractors who have a reputation for sticking to the budget and the timeline. 

5.      Market and sell your property