Starting any new endeavor isn’t easy. Whether you are switching jobs, changing careers, beginning a diet or starting a business the first steps are always the hardest. The same is especially the case in the world of real estate house flipping. With increased interest in the business more people have started investing in real estate over the past few years then ever before. Knowing exactly where to start can be frustrating, overwhelming and ultimately leave you second guessing your decision. However, with the right pieces in place and a roadmap for success your first house flip can springboard you to greater heights. Regardless of your professional background there are a handful of important items you need in order to give you the greatest chance for success. Here are four important tips to help you get started house flipping.
- What’s your plan? So, you decided that house flipping is the type of investing you want to get involved in. Great, but where do you go from here? The first thing you must do is decide where, when and how you want to invest. Start by choosing an investing market. Without a dedicated market you will chase after every new listing without really know what you are looking for. You are better off picking two markets based on proximity, demographics, upside and housing data. Until you get a few deals under your belt only pursue properties in these markets. Over time you can expand but for now stick to these two. Next you need to know what type of condition you are looking for and what price points are acceptable. You don’t need to have all the funds available now (we will get to that) but you should have a plan on the work you can do and the team you will need. Price, market and condition will help determine the capital needed and the team you must find. Without these core items in place it is difficult getting very far.
- Understand deal structure. It would be great if you had hundreds of thousands in capital ready to invest. The reality is that you probably need to find access to money to get started. Before you get to that point it is a good idea to understand the process and how deals are structured. It is too simplistic to say that you are looking to buy a property, fix it up and sell it for a profit. In that scenario there are many factors that influence return. You need to know every facet about the numbers that go into your deals. There are commissions and closing costs on the purchase side, carrying costs after acquisition and always additional repair costs during the rehab. You should talk to as many fellow investors as you can to get a true portrait of exactly what goes into a rehab. Without knowing the costs and numbers it is difficult trying to get money. You will be pressed on questions that you simply don’t know the answers to. Once you have a grasp on how to structure a deal and are able to properly estimate a bottom line you can look for money to close your deals.
- Find money. For most new rehab investors finding money is seemingly their biggest hurdle. The reality is that there are more sources for capital than ever before. In finding capital you have a few popular options. The first are hard money lenders. While these may sound intimidating at first, they are much more common than you may think. A hard money lender is any individual or corporation that lends money. With just a little research online or with your network you can probably find a handful of hard money options. These lenders have their own unique set of guidelines, criteria, rates and fees specific to them. Instead of working like a traditional lender they work more on a case by case basis. Under the right scenario they will lend 100% of the purchase price, plus any rehab costs. For this they may take a share of the profit, but at least you have the ability to get started. An additional capital option are private money lenders. These are people in your sphere of contacts that have money and are looking to invest. They usually don’t have the same guidelines for lending and are usually looking strictly at their return on investment. Between hard and private money lenders, there are options available to find the capital you need to get started.
- Build team. Once you have an idea on how you want to invest, how the numbers work and where you will find capital you can start building your team. Every good rehabber has a core of people they will lean on for success. Your real estate agent, mortgage broker or hard money lender and contractor all play an integral roll in your business. Your realtor will help you find deals in your desired market that match your goals. The right financing can help make the deal a reality and your contractor will make the necessary updates. It is important to recognize that you should not wait to find a deal to build your team. There are many investors with your same experience level that are working on team building right now. Just reach out to these people and explain where you are in your business, what you want to do and see if they are a good fit. The right team can make or break our business and help ease you into the process.
Anyone can be a successful house flipper with the right plan in place and a solid team around them. Use the four tips to help get started rehabbing today.