House flipping is a type of real estate investment strategy when an investor purchases a house in need of maintenance or a foreclosed property in order to repair and sell it within a short period and with a profit. From this overview, you already get the idea that a house flipping business requires knowledge, skills, and lots of planning.
Indeed, there is a lot to consider before joining the fix and flip game. In this article, we’ll cover only a few steps that any investor should take before buying the property to flip.
- Learn what to expect from this type of business, it won’t be as easy and fast as on TV. Every investor aims to spend as little time, money, and effort as possible on fixing the property. In reality, the process may take longer and turn out to be more costly than you expect. Do proper research, talk to people who are already in the business, and understand what you are getting into.
- Invest in a business plan before making any commitments. An in-depth business plan will help you keep your business on track, evaluate the competition, estimate potential expenses and profits, attract financing, and understand if this business is worth your effort.
- Grow the network of specialists involved in the real estate business. You will need a lot of industry professionals to help you keep the business running: realtors, suppliers, contractors, plumbers, carpenters, electricians, and so on. You want the most reputable and qualified team on board, right? Then start searching for those diamonds in your existing personal and professional network. Remember that word-of-mouth advice from someone you trust is a good complement to a work portfolio.
- Identify financing options. The first thing that usually comes to mind is a bank loan. Although, if you are at the beginning of your fix and flip business, probably, you will not be qualified for a traditional bank loan. It does not mean that you should not try to apply. Just make sure to look for alternative financing options to back you up. Hard money loans can be one of them.
- Take time to analyze and calculate. Don’t rush into purchasing as soon as you see a property on sale at an extremely low price. Remember that, more often than not, a low price means the need for significant repair and renovation. It will multiply your expenses and force you to increase the sale price (or get less profit on the flip). Make research to understand if a potential buyer would want to pay X price for the house in that specific area. If the neighbourhood is undesirable and lacks infrastructure like good access roads, supermarkets, schools, etc., it will likely be hard to make a sale.
Fix and flip business does require a lot of research, planning, and patience. In other words, it requires time, effort, and money. On the other hand, it can become a very profitable business once you figure out your way of doing it, establish a solid network of professionals, find trustful lenders, etc. If you are ready to get started, we’ll be happy to cover the financial part of this exciting business!