House flipping is an enticing venture: buy a cheap home, give it a facelift, and sell it for a $30,000 profit. However, the reality behind this real estate venture is harsher than one might expect.
Flipping a home takes a ton of capital, time, and hard work before it can become a lucrative investment. If you’re considering expanding your business acumen to flipping houses for a profit, you should approach it like a business, not a hobby. First learn the key steps to starting a business. Begin by considering these issues:
Financing Issues
Your first priority should be to determine how you plan on funding your venture. Making a real estate purchase into a lucrative venture requires plenty of upfront capital. Cash is always preferable, but that’s a pipe dream for most of us looking to get involved in flipping homes. Consider the following financing options:
Traditional Bank Loans
If you’re just starting out in the flipping business, you’ll find it quite difficult to secure bank financings. As of late, national banks usually require someone to have two years of experience in flipping houses with demonstrated success, a great credit score, and limited debt.
If you do happen to qualify, or if you’re working with a community bank willing to overlook your lack of experience, expect to wait at least a few months to secure the money you need. The most enticing benefit of bank financings is the low interest rate – it’s usually the cheapest form of capital you can acquire.
Real Estate Crowdfunding
A new form of capital raising has arrived – crowdfunding can be a great way to find the capital you need. There are numerous crowdfunding platforms like RealtyShares.com that can put you in contact with investors looking to lend to flippers. After the property is fixed up and sold for a profit, the loan and the investor can then be paid for their contribution.
Similar to bank loans, you’ll find that it’s hard to secure a crowdfunding loan unless you’ve already demonstrated profitability in the real estate market. You’ll also need a decent credit score and no bankruptcies or foreclosures in your recent past.
Hard Money
It can be hard to acquire all the funds needed for a second home, especially if you’re located in a highly populated area with costly real estate prices. Take Southern California, for example. With a booming real estate market and increasingly depleted land resources, it’s easy to find yourself stepping into millions of dollars of expenses on a simple four bedroom home. In these cases, it can be hard to procure traditional loans.
Hard money lenders like SD Equity Partners can provide the financing for a real estate transaction in these saturated real estate markets. Hard money loans are much easier to qualify for, and if bad credit or tight-reined banks have made it nearly impossible for you to procure the financing you need, this might be a worthy route to consider.
Consider the Responsibilities
Beyond the money you need to make your venture successful, you’ll also need to be blessed with a bevy of time and be prepared to take on numerous responsibilities. Many mistakenly believe they can go into house flipping as a hobbyist, but nine times out of 10 this will end in money lost and a failed venture.
To actually make money with this venture, you’ll need to invest all that goes into a full-time job, and be secure enough in your finances to wait for profits to roll in – potentially years down the road. If you’re not skilled with home repair, know that you’ll be shelling out quite a bit for contractors, plumbers, electricians, and the like.
Finding the Right Property
Finding a house to flip isn’t as easy as signing your name the moment you see a rundown property for lower than market value. Never buy the first house you look at out of sheer excitement and desperation to get started. Take your time, and use all available resources to secure the right property for the right process. Look through listing sites like the MLS, use the aid of a real estate agent to find better properties, and head out on foot to take in what might be available in your desired area.
Flipping houses isn’t as easy as all the televisions shows have made it out to be, but it can be a lucrative source of income if executed properly. Keep these tips in mind before you head into the flipping game and make your venture a success.
Hank McKinsey writes about a number of topics, sometimes focusing on real estate and entrepreneurial ventures. Hailing from Western Pennsylvania and currently residing in Central California, Hank’s hobbies include golf, tennis, jazz music, and eating. While journalism was his college minor, crafting and DIY have always been his creative outlets.
