The world of Real Estate Flipping has a lot more to it than how it seems. In case you are new to the field, chances are that there is a lot that you could learn. As opposed to what one might see on television, the concept of real estate contract flipping isn't as simple or easy.
If you want to get started with flipping real estate, this can be the perfect article for you.
Simple Steps for Real Estate Flipping
About the Neighborhood
Before making a move on the concept of real estate contract flipping, try spending some time doing your homework and researching the real estate market to choose the perfect location to invest in. It can be a great idea to work with a flipping real estate agent who can better help you with proper guidance throughout the buying process.
As soon as you have found a home that seems worth purchasing, bringing in a contractor for property assessment can be a great idea. This can further help you to get an estimate of the work that needs to get done and also to check if the house budget still fits.
The 70 Percent Budget Rule
With the idea of flipping real estate, the use of the 70 percent rule is pretty common in relevance with the purchase price. According to the rule, an investor should only pay 70 percent of the after-repair value of a property, deducting the necessary repairs.
Skill Set Assessment
There are some skills that can help in making the home flipping project a success. For starters, knowledge about construction, design, and real estate can be a good place to start. Even if you don't have the skill sets yourself, you can try to come in contact with professionals who possess them. Assemble a team that can assist you in any manner required. These people could be lenders, real estate agents, insurance agents, and even contractors for helping you find, fix, and sell the property.
Project Financing
The next step for real estate flipping is to understand how to finance the project. In case you don't have the cash to move forward with the project, try to get a pre-approved loan. For doing this, you will need to have a good credit score and the bank might even need a 20 percent down payment for some kind of collateral.
Pick and Buy
Finding the perfect fit for your property can be one of the most challenging things to do, especially for real estate flipping projects. The problem arises because you probably can't think about how much the actual cost would be, while also having to consider the potential resale value to make sure that the profit margin is the highest.
As soon as you have found the perfect fit simply make an offer and close the deal for the place. If the place is really great, there are chances that you might face competition from other potential buyers. This makes it important to know about the maximum price that you can pay while still getting out with a profit.
Sweat Equity Building
In case you have a low budget and are a rookie in the business of house flipping, simply save yourself time and money by building sweat equity. This means that you put in your own unpaid labor on the project, be it in terms of mental effort or even physical labor.
House Flipping
As soon as the repairs are done, you can get to resell the house. Time is of the essence because the longer you wait with the house on the market, the more you lose out on profit. Ensure that your goal is to make quick improvements and sell the house as soon as possible.
Major Challenges with Real Estate Flipping
Shifts in Demographics
Is the market area stable, growing, or on the decline? Knowing this can tell you how aggressive you will have to be with the pricing. There are plenty of online sources that can offer similar information.
Marketing Trends
It is important to learn which way the market is tilting before you move forward with the concept of real estate contract flipping. Is it booming or is it balanced? Are things going down the drain? Cross-check your tips with the national sources and the local real estate agent once every month to get all the updates on the market.
To be specific, you should keep an eye on a year over year trends along with the current average days on the market in the area.
Timing is Everything
It is no secret that the concept of real estate contract flipping goes throughout the year since houses get sold all year round. The catch here is that it is a discernible pattern. The sales hit a deep low in late January and February and rises in late July. It is important for you to know where and when the projects hit the market. Once you have finished the rehab of the house in January, chances are that the days on the market might be a bit longer than in July and chances are that you might have to be more aggressive in terms of pricing.
Rate of Interest
This is something that should be monitored at all times for maximum benefits since the rates are expected to rise in recent years. This will put some of the homes out of reach for some buyers.
Investor Experience
People bring out the best work they have in store when it draws out experience for them. As soon as you move forward with the idea of branching out into something new, make sure to not hesitate to call a friend who has appropriate experience in the same area. It might be a new type of territory, kind of rehab, way of acquisition, or even disposition for that matter. There are even chances that you might agree to form a joint venture with an experienced friend.
Valuation
Many can think of it as the most critical piece for the evaluation of a potential deal, which is, what will be the selling price. Often known as the after-repair value aka ARV, any great real estate agent would be more than willing to do a comparative analysis of the market on the basis of the rehab plans and the selling price in question.
Generally, on real estate flipping reality shows, an investor first buys a house, fixes it, and brings in a realtor who tells them what they actually want to sell it for. On the other hand, real investors never do anything remotely close to this. They are known for making an original offer for purchase on the basis of what it is about and what the selling price would be.
You can ask around for a broker who has the right kind of specific training and qualifications. From personal experience, it can be seen that people who do BPOs generally sit at a desk and are writing BPOs, and aren't much for fieldwork.
Another source of value can be an appraisal. Come in contact with an appraiser who knows how to conduct ARV on the basis of your rehab plans.
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