Most people are aware of the term commonly referred to as ‘flipping houses’. While there are many television shows that have portrayed this hobby as a lucrative and successful one, like most things it is not as easy as it looks. Before you venture down the road of fixing and flipping homes, there are a few things you should be aware of.
But first, what does fix and flip mean?
Real-estate investors who are looking for a fast and reliable ROI (return on investment) primarily use the fix and flip homeowner method. These real-estate investors are only interested in short-term property investments, where a home is renovated and turned for a profit.
What is a fix and flip loan?
So you have the plans and the property you want to flip picked out, and now all you need is the funding. Funding fix and flip projects in Denver is the largest obstacle most people encounter when attempting to make this business their full-time job. So where and how do you get the money?
While you could always go the private invest route, for fix and flip loans in Denver you may want to consider a hard money lender. Hard money loans have a statistically higher approval rating because the investor is more interested in the potential of the real-estate. While regular bank loans are invested in the person or people they are loaning money to, hard money lenders see the monetary value of a borrower based on the property they intend to fix and flip. These types of loans are best for experience fix and flippers or novice flippers who have employed the services of a licensed contractor.
So now, what do you need to do to get a fix and flip loan?
The first thing you should do seems rather obvious but you need to find a property you want to fix and flip! Once you think you have found the perfect property, analyze these four major cost areas to determine what type and how big of a loan you need:
- The initial cost of the home
- The renovation costs
- The holding fees, such as insurance, HOA dues among other homeowner expenses associated with owning and renovating a home
- Realtor commission and costs for find a buyer for and selling your recent fix and flip project
Once you’ve evaluated the costs, it’s time to prepare for your loan meeting by creating a rock solid business plan for your fix and flip project. Your business plan should anticipate any questions a funding group might have, and include the answers to those questions. You business plan should include:
- The property address
- Accurate appraisal of renovation costs
- A strategy, mission statement and executive summary
- Accurate before and after estimated on the property
- An exit strategy or backup plan
- A market analysis
- Detailed background on the neighborhood and all essential personnel involved
If this is your first time fixing and flipping a property in Denver, the second half of your focus should be on growing your network of real-estate investors. Having a strong network can not only make it easier to find buyers for your projects, but many real-estate investors also invest in other’s projects. By joining your local Real Estate Investors Association (REIA) before applying for a loan, you open your project up to other potential investors.
Lastly, you need to fill out a loan application. Once you’ve completed your loan, you could have the funding to start your fix and flip project within a few days!