What is "Fix and Flip" and Should I Do It?
Real Estate Investment Advice
“Fix and Flip” simply means buying a property that is currently not safe for living, completing the necessary repairs, and reselling the property for a profit.
What kind of repairs?
It may need some repairs, such as plumbing, roof repairs, sheetrock or electrical, or it may need a total renovation.
Why are these properties in poor condition?
Some may have been vacant for years, and simply neglected. Others may have been damaged by a weather event or human-caused destruction.
Before I start shopping, what do I need to know?
You need to know WHO you will need to work with and HOW you will pay for this process.
The Team
First, get a real estate agent that you can trust to clearly communicate with you each step of the way. They need to provide evidence for their claims. For example, the real estate agent needs to explain the current likely value and most likely value after the home is renovated. The should be able to show you evidence of current market trends, and provide background information from available sources, to give you a clear understanding of the property before you buy.
Your real estate agent will orchestrate the process with you. They are your guide.
Second, you’ll need a contractor. If you can do the work yourself, great! But if not, find a licensed and bonded contractor. Ask for a copy of the contractor’s license and examples of their previous work. Any reliable contractor should have no problem providing this information to you.
Financing
Your lender can provide a full list of options, but here are some basic information that can help you in the conversation with the bank.
First, what are your assets?
How much cash are you willing to put toward a purchase?
Do you have any liquid assets? (Things you can sell to get cash immediately)
Are you willing to use a house you already own as collateral toward the new purchase?
Second, what are your mortgage options?
(If you’d like a lender referral, just comment or message me. I will send you a few to consider.)
Conventional mortgage - for investors usually requires a 20% downpayment
Renovation loans - usually requires a 15% downpayment (sometimes less for special offers)
USDA rural development - 10% or less downpayment available if the property is located in a city with fewer than 35,000 residents.
Not a US Citizen? That’s okay too. Click the button below for info on buying without a Social Security Number
Hard money lending - These can be tricky and the risks are higher. Hard money lenders provide cash to buy, with certain stipulations attached. Usually the amount you pay back will be higher than a bank. If you chose to use a hard money lender READ THE CONTRACT VERY CAREFULLY and have an attorney available if needed.
Co-op purchases - Some people work together in groups of 2 to 5 and split the downpayment costs to make it easier to get started as an investor. Co-ops use the usual mortgage process (which is the safest) but split the costs and workload, making the process easier to manage.
Click the button to read more details about Co-op purchases
To learn more about lending and interest rates, click the button below
Let’s recap from here: First, get your team together - realtor and contractor.
Next, get your lender and funds ready.
Now it’s time to start shopping. What do you look for?
This is where your agent is a huge help. Your agent will know which areas to buy in, they will know when a price is a great deal or not, and they can protect your interests during negotiations with the seller.
The key to success is to MOVE FAST.
After you explain your goals to your agent, she or he will only send listings to you that meet your goals. These kinds of properties sell quickly, so if you’re ready to start as an investor, don’t hesitate to make a buy and get started.
As I’m writing this, there is a property priced at $60K. The exterior is in great condition. The interior is gutted, meaning it needs a total renovation inside. Once renovated, the property will likely sell for over $150K easily. If you were my client, I’d advise buying this if the renovation will be less than $40k. You’d put in $100K and sell for at least $150K.
That’s the kind of important information your agent should have ready for you when a property is available.
In the next article, I will share some common terms to help you understand each step of the process.
Click this button if you want to learn how buying and selling property will affect your income taxes in the United States.
And click the button below to learn the difference between buying and selling as an individual and as an LLC.