Take it from us, flipping properties is a tricky business. You really need to know what you’re doing in order to be successful.
Before buying a property, the first and most important thing is to decide where you want to buy, i.e. the neighborhood. It’s important to understand the market trends. Certain areas in a given community make smarter investments than others. If you invest in an area where property prices are declining, the chances of losing money increases considerably. Don’t hesitate asking for help. You can ask for assistance from a local real estate agent who specializes in that neighborhood or call the tax office.
What is the potential worth of the property in that particular neighborhood? Do you have an idea? You must be aware of the local sales pricing, especially the recent ones, because property values can change very quickly. The way to meet your objectives and attain success is to understand what VALUE flipping that piece of real estate will bring you. When you want to buy a car, you do your research to find the actual value. Similarly, if you invest in stocks, you have day-to-day stock indices that can tell you exactly where a security is priced. But real estate is really a lot more subjective, and you have to do your research more diligently in order to gauge the value of the property in order to obtain a successful flip.
What about funding that flip? Within the realm of property flipping, short term private funding is the route to go. Someone just starting out in flipping properties is not going to be able to get that traditional lender to give them money because they don’t have a track record, so private money is key. If you have a good relationship with a private lender, someone who has confidence in you that the job will get done, the process for getting funding is much quicker and easier than through traditional lenders. You’re going to pay a little more for it but the number of hoops you must jump through to acquire capital through mortgage lenders makes private lending very attractive if the funds are only needed short term.
Use your own cash before dipping into a loan. Once you start taking loaned money, the clock on the interest starts to tick. So the whole incentive with private money is to get started and finish quickly and use as little of their money as possible. If you must use it all, which is not always a bad thing, make sure you have a solid strategy to get out of it fast because at an average interest rate of 15%, the amount you must repay can add up quickly. Consider the difference between having the interest rate of 15% over a year versus over 61 days. When you minimize the amount of time you have this money – you owe less and can pay it back much easier.
You’re bound to have lots of questions whether you’re a first time flipper or just someone who is struggling and running into problems in the business of flipping properties. With over 400 rehabs under our belts, we have some great insights and answers for you in our new video series Flipping Properties Like a Pro. This online series will teach you:
- How to FIND (and win) like a PRO – how to beat the competition
- How to FIX like a PRO – how to find and keep the best contractors
- How to FLIP like a PRO – how to prevent losing on the sell price because of mistakes