How to succeed at real estate flipping
Buying a property at a great price, renovating it with love, then reselling it for a profit – so many people dream of doing this! But real estate flipping can quickly turn sour if you don’t do it right.
So how do you go about making a real estate flip and succeeding?
Finding the right property to flip
To make a successful real estate flip, you have to seize the right opportunity. This is one of the most important things to know about flipping.
The right opportunity is often not advertised on the market. And it is often not in the hands of a real estate broker, either. Most of the time, you have to find it yourself. But where?
You can find the perfect opportunity in many places, such as:
- a neighbor who wants to sell because of divorce, inheritance or relocation
- a property with a 60-day notice
- a property for sale by a bankruptcy trustee
- a property that appears vacant or abandoned
Defining the essentials before starting your flip
To make sure your real estate flip is profitable, you need to buy the building below market value and then resell it for a profit as quickly as possible, usually within a year.
The profit on a real estate flip depends on 4 main factors:
- initial purchase price
- cost of renovations
- resale price
- costs related to resale
Roughly speaking, the profit on a flip is the difference between the resale price and all other costs associated with the project.
You must also consider carrying costs that you will have to cover for as long as your flip is not sold, such as interest costs on the mortgage, municipal taxes, school taxes, electricity, maintenance, snow removal, etc.
Calculating the costs of your planned renovations
Not all real estate flip projects require a lot of renovations. However, it is always very important to know in advance the extent of the renovations you will need to do, big or small.
Remember too that not all renovations are worth the cost. Some types of renovations will give you a better return on your investment than others. In short, don’t under-renovate or over-renovate. You have to renovate intelligently and just enough; otherwise, you run the risk of eroding your profit margin.
In addition, and even if you are a seasoned handyman, you will need to hire licensed professionals – plumbers, electricians, carpenters, etc. – to help with the renovations, because there are types of work the law does not allow you to do, whether you occupy the building or not.
In short, the costs of your materials and labour are very important to consider before saying “I do” to flipping.
Choosing the right location of the property to flip
Choosing the right location is also key to success in a real estate flip. There is much more real estate activity in urban areas. Ideally, your flip should be located in a market surrounded by services and activities.
And since you’ll be making multiple trips there, especially during renovations, it’s even better when it is located near your current property.
Tell yourself this: the closer your flip is to a desirable area, the faster it will sell. The location of your flip will be a major factor in determining its success. It is also one of the criteria used to assess a property’s market value.
Getting the right financing for your real estate flip
Financing a real estate flip involves choosing the right financial partner. There are 5 common ways to fund a flip project:
- conventional financing from a traditional financial institution
- financing through equity on your current property
- partner investors
- local capital (“love money”)
- private lenders
Traditional financial institutions don’t like to fund real estate flip projects, especially when the building is, or has been, subject to mortgage recourse, is a repossession, or was sold by a bankruptcy trustee.
So, how can you finance your real estate flip without having to share your profits with a partner investor? The answer is simple: get a private mortgage!
Getting a private mortgage for your real estate flip
Access to a private lender is ideal for financing a real estate flip. In fact, this type of lender offers tailor-made loans for real estate investors who want to go all out. Their financing solutions, which can be up to 75% of the property’s market value, are ideal for real estate investors who plan to hold their property for the short term, as is the case with a flip.
The procedures for obtaining a private loan are also very simple – in fact, much simpler than those required by traditional financial institutions. It is even possible to apply for financing online in just a few minutes.
With a private lender, you won’t have to go through any credit or income checks. The only things that you will be asked to provide are:
- the address of the property
- the value of your property (price paid)
- the desired loan amount
- proof of down payment
- the certificate of location (if you have it)
- a list of work that will be carried out, as well as proof of the costs of this work
With a private lender, getting financing for a real estate flip is now easier than ever.
Real estate flipping – some final advice
So, still interested in doing a real estate flip? Before closing this article, here are some tips to ensure the success of your investment project:
- do a pre-purchase inspection if you are not in a multiple offer situation
- ask for at least 3 quotes for the renovation work
- ask for a real estate appraisal to determine the potential value of the building after renovations
- supervise the work, delegate, and surround yourself with competent and reliable people
- location, location, location: choose the best possible location
Real estate flipping – yes, it’s possible to get in the game!
Making a real estate flip is a real adventure. And like any adventure, it is important to properly assess, plan and execute the project. After all, the success of your flip depends on it!
We hope you have enjoyed this article, and we invite you to contact us to discuss your flip project and financing needs. Together, we’ll help make your flip happen!