You may have already heard of flipping a home. There are two different modes of flipping properties. Some people purchase a home, make repairs or renovations, and then sell the home for more money. Others purchase properties during a real estate slump 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 they are ready to list it on the market.
Locating a Property You Can Flip
One important concept to understand very clearly when considering a home to flip is that location is everything. A home can only be flipped successfully if you purchase a property in a location where homes are in high demand. You will have to invest time in understanding your own local area, or the area in which you are considering purchasing. If the property you are considering has homes that have not sold in long periods of time, avoid that home completely. It is a general rule in real estate that the longer a home is on the market, the lower the selling price will be.
Another option to find lower priced homes is to look for homes that are being foreclosed on by the bank. Since foreclosed homes may need repairs, have a home inspector look at the property before you agree to purchase it. A foreclosure can cost much less than similar homes in the same area. If you get the repairs done, you can make a lot on the home when you re-sell the property.
Sometimes, you may also be able to purchase a home that the original owners were not able to keep up. These home owners may have let repairs go, and therefore they are willing to sell the home for a reduced price in order to sell the home as fast as possible. In this scenario you will also have to fix the home yourself before you sell it again, but you can still make money using this method.
Experienced house flippers know to look for certain 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 signals that the seller is motivated.
Getting a Lender Interested
Due to the challenges that the mortgage industry has faced in recent times, banks are not as inclined to finance a home to be flipped as they once were. It is still possible, however, to get funding. If you have equity built up in your current home, you can use your home as security against the home you intend to flip. Your other option is to obtain a mortgage and have the property listed as a rental, but you must make sure you understand all of your bank’s rules.
Whatever path you take, a mortgage to flip a home is usually only 80 percent of the value of the home you are trying to purchase. It will be necessary for you to find the other 20 percent of needed funding. Some buyers use credit cards or other unsecured lines of credit in order to come up with the difference. If you use this option, take into account the interest rates, since you will have to make payments until the home is sold.
The best situation is to find a lender that is experienced in handling homes that are going to be flipped. With the right lender, you will be able to get 100 percent financing and possibly some additional funding to go toward the necessary 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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