You may have already heard of flipping a home. There are two different ways of flipping properties. Some flippers purchase a home, make repairs or changes, and then sell the home for more money. Others purchase properties during a real estate downturn when the prices are low, and hang onto the property until the market goes back up. Many people who use this method rent out the house until the timing is right to list it on the market.
Finding a Property You Can Flip
One important concept to understand very clearly when considering a home to flip is that location is key. A home can only be flipped successfully if you purchase a property in a location where homes are selling quickly. You will have to invest time in understanding the area you are thinking of investing in, or the area in which you are considering purchasing. If the property you are considering has homes that have not sold in a long time, avoid that home completely. It is a general rule in real estate that the longer a home remains on the market, the lower the selling price will be.
Another option in finding lower priced homes is to look for homes that are being foreclosed on by the lender. Since foreclosed homes may have been neglected, have a home inspector look at the property before you agree to purchase it. A foreclosure can cost much less than comparable homes in the same area. If you get the repairs made, you can make a big profit on the home when you re-sell the property.
Sometimes, you may also be able to buy a home that the original owners were not able to keep up. These home owners may have let repairs go undone, and therefore they are willing to sell the home for a reduced price in order to sell the home as quickly as possible. In this scenario you will also have to fix the home yourself before you are able to sell it again, but you can still make a profit using this method.
Experienced house flippers know to look for certain key words in a listing that show that a seller needs to make the sale. Words like fixer-up, foreclosed, must sell, or vacant are clear signs that the seller is motivated.
Financing the House you Plan to Flip
Recent changes in the world of mortgages are making it harder to gain financing for flipping homes. Nevertheless,it can be done. It’s more possible if you have equity in your home already. You’ll borrow the money using your home as collateral and then pay it back as soon as the property you are flipping sells. You can also take out a mortgage listing the property as a rental, but make sure you understand any stipulations made by the bank.
Regardless, any bank offering you a mortgage loan to flip a house will generally loan 80 percent of the home’s value. You need to find alternate ways to gain that other 20 percent; many have used plastic or unsecured lines of credit. Keep interest rates in mind when selecting these options. If it takes months to sell the home, you’ll be paying on your credit cards in the meantime.
The best way to finance a home you plan to flip is by finding a loan officer who has handled them before. If you locate the right lender, it’s possible to gain funding for 100 percent of the home’s value, plus an additional amount towards renovations.
Understand the Terms of Your Financing
The bottom line in this process is that you are okay with the terms of your mortgage. Some lenders require you to keep a home for a minimum time period, such as six months. Keep in mind that this waiting period is in addition to the time you will have to wait to find a buyer and complete the transaction. You will have to be able to afford the repairs and your payments on the mortgage until you are able to sell.
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