One of
the best uses of hard money loan programs like Indicate Capital, is for
investing in fix and flip real estate properties. But remember, lots goes into the process of
buying, rehabbing a home, and flipping it back onto the market. A fix and
flip project focuses on rapidly expanding the value of a property through very
targeted remodeling. You have to figure
out the budget to complete the home, who will do the work, how you will secure
the home, and what your backup plan is if it falls through. It is possible to make a great deal of money with
fix and flip investments in Colorado but there are precautions to take into
account. By setting an accurate budget
for your remodeling projects and completing as quickly as possible, it is
possible to add significant value to the structure. The longer the project takes, the lower the
profit will be. Below are tips Indicate
Capital suggest fix and flip investors take into consideration in order to get
the most out of your real estate investment.
Calculate ARV
ARV – After
Repair Value, helps determine if a property is a worthwhile investment. ARV represents the total home value after all
renovations are done. The difference between your “as-is” property
and the ARV is your potential revenue. To measure ARV, look at homes similar in
age, size, square footage, room count and location, ideally within a mile of
the target property.
Plan for Potential Risk
There are always risks associated with a real estate investment and not all flips are going to work out perfectly. You may find a perfect home, have the budget planned out for the renovations, but what about the hidden problems that aren’t apparent till after you begin demolition? By planning ahead and having a reserve fund for each flip, you can give yourself a safety cushion to fall back onto in the event a fix and flip becomes a flop.
Budget
Properly
Real estate flipping expenses can grow unexpectedly if you are not careful. To estimate repair costs, get bids from multiple contractors. If you are planning to perform some renovations yourself, invest time while shopping for your materials. Indicate Capital suggests adding 10 percent on top of your best budget estimates to account for the unexpected. Also, don’t forget about closing and holding expenses. Closing costs can be quite challenging to estimate in advance. It is not unusual to spend 2 percent to 5 percent of a house’s value for closing. Costs can be reduced by negotiating concessions or managed through favorable financing. To budget accurately, get several estimates for total closing costs. Don’t forget optional but desirable extras such as a home inspection.
Work
with Reputable People or Consider a Partnership
It is important to find good people to work with on your real estate projects. Find someone who understands the industry, is experienced, and can be trusted to complete the task they are assigned. Partnering with another investor substantially reduces your risk. Although this will inevitably reduce profit, it can be worthwhile. In most markets where fix and flip is taking place like Denver, there is a thriving community of real estate investors. Working together can mean success for all instead of costly competition. In the end, if you are working with someone be sure to work together as a team for the same end goal.
If you have questions or want to talk before purchasing a fix and flip, let us know. Contact Indicate Capital.
