Flipping a house… unless you’ve done it before, the idea can be exciting and scary all at the same time. Perhaps you having been thinking about it for a while or maybe you drove by a house and inspiration struck. But if this is your first time there are some key things to know before jumping in.
Qualifications:
There are some qualifications in order to begin your investment portfolio. Unless you have hundreds of thousands of dollars sitting around in cash most likely you’re going to start off flipping your first house by financing. In order to do so you need an excellent credit score. Many lenders have tightened their requirements for certain home loans and mortgages and if you want to purchase a house in order to rent it back out or flip it for sale, you’re going to need even higher credit scores and a higher down payment.
Cash. You’re going to need some cash in order for the down payment and earnest money deposit. In order to make this a profitable adventure you’ll need to trim as many costs and added fees as possible including private mortgage insurance. You probably won’t want to buy a house with an FHA mortgage because there will be additional fees for mortgage insurance that you won’t have on a conventional loan. There are several ways to find cash; perhaps and home equity line of credit, a credit card or even simply save up and have enough money to put down on the house. You also have extra costs in realtor fees, closing costs and appraisals.
What to look for:
The market.
You need to understand the real estate market in your area in order to be able to purchase a home that will return some profit. This is best done by utilizing the help of a buyers agent. This type of agent works solely with buyers to finance, locate and facilitate the purchase transaction of a home. Talk to your buyers agent about your requirements, what you’re looking to get out of the home and neighborhood might be beneficial to your investment needs. Often times finding the poorest house in the best neighborhood is one of the best ways to flip the house for the most profit. Simply by fixing a house up in one of the better neighborhoods will naturally add value to the home. Choosing the best house in the worst neighborhood will likely lose money.
The location.
As we simply stated before finding the worst home in the best neighborhood is often the best option for flipping a house. If all the other houses appraise higher than the general market and you find that diamond in the rough that simply needs cosmetic work in order to turn around a profit, this is the best option for you but again, having a buyers agent that understands the different neighborhoods can make this process much easier.
The schools.
Schools are a huge factor for buyers, especially those with children. Finding a home in a great school district will broaden your home buyer search that much further.
The condition.
Having an inspection is crucial to the home buying process, especially if you’re planning on doing some repairs or cosmetic replacements. You want to make sure that this investment offers a good return. Talking with your inspector about the different repairs and how much is needed to fix up the property is imperative. If the cost to fix up, repair or replace exceeds the new sale value, the property is not worth buying. It has to make sense, dollars for dollars on paper for the property to return your investment.
Related: Are you looking for cash flow or a cash gain?
How to start:
The first thing to do is to get educated as much is possible on flipping houses, what to look for and how you can set your self up before looking at homes for the best possible return. Understand the neighborhoods, analyze how much home you can afford and find a good negotiating strategies in order to get the right home at the right price for your needs.
Talk to a real estate agent that is proficient in investing and flipping homes. You can find out about the best repairs or improvements to make in order for the greatest return. Research listings, foreclosures, short sales and distressed homes to find out what’s making a profit and which neighborhoods are in high demand.
Finding a home to flip should not be a knee-jerk reaction. After you’ve done tons of research, carefully choose the right home and when you find it, pull the trigger on it. A great deal is not going to last long so once you’ve done your research be ready to jump on a great deal.
For more information on investing and flipping houses contact our office today. We specialize in representing buyers throughout the Orlando area I would love to help you get started on your real estate investment portfolio today.
