How to Start Flipping Houses With a Fix and Flip Loan
Wondering how to start flipping houses but don’t know how to finance it? Find out about a fix and flip loan to jump start your house flipping business.
Flipping houses is a money-making process that people use to turn old, run-down houses into beautiful homes that sell for a profit. The average profit people make from a flipped home project is around $62,700.
Is this a business you’d like to start doing? If so, you might have some questions about financing your projects. Unless you have cash in the bank to use, you’ll need a financing strategy.
One option you can use when learning how to start flipping houses is a fix and flip loan. If you’re looking for a way to get started flipping houses, this might be your best option. Here’s some information to help you learn how these loans work.
How to Make Money From Flipping Houses
Creating a house flipping business is not as difficult as some people might think. Before you begin, you’ll have to make sure you understand the process and have what it takes to develop a profitable business.
Flipping a house is a process that begins with the purchase of a house. You can buy an as-is house that needs work or a fixer-upper. The goal is to find a house that needs work.
Additionally, you’ll need to find a house with potential. For a house to have potential, it needs to be in a good, safe area. The home must also be priced right so that you can make improvements and sell it for a profit.
Flipping houses typically involves making many repairs and updates to a home. Some homes might not need a lot of improvements, while others might.
If you’re interested in this business, you’ll need experience managing home construction projects. It’s even better if you have the knowledge and time to complete the work yourself.
These are a few vital traits needed to flip homes successfully. If you have these traits, this might be a great endeavor to pursue.
How to Start Flipping Houses
So, to make money through this process, you’ll need to sell a flipped home for a price that exceeds the home’s cost and repair expenses. Therefore, it’s vital to know how much it costs to flip a house.
Every project is different, but you will always have some of the same expenses. Here is a breakdown of the expenses you’ll have to pay for when flipping a house:
The Purchase Price
One of the most significant costs of a house flip project is the home’s purchase price. The amount you pay for the house is typically the most expensive cost you’ll have. However, there are times when the repairs cost more than the house itself.
Costs of Liens on the Property
When you buy as-is homes, you might encounter times when the homes come with liens. If this occurs, you’ll have to pay the liens. Therefore, you should always find this out before going through with a purchase.
You’ll likely need to pay for the necessary permits for the project, too. Rarely can you complete a project like this without getting permits from the city or county the house is in.
Property Taxes and Insurance
Throughout the time you own the house, you’ll be responsible for paying for the home insurance and property taxes the home needs. You can reduce these costs by completing the flip quickly and selling it right away.
If you pursue a fix and flip loan or any other type, you’ll have fees. Every lender charges a loan origination fee when borrowing money, but the fees vary.
The other significant expense for the project is the repair bills. These are the expenses you’ll pay for improving the property before selling it.
The Types of Loans You Can Use for Flipping Houses
Understanding the expenses of a house flip can help you determine how much money you’ll need for the project. When you understand these things, you can begin pursuing your loan options.
People use a variety of different loan types to flip homes. Here are some common options that you could consider:
Home Equity Loan
Many people finance their first house flip by borrowing money against their homes. If you have equity in your house, you can borrow it through a home-equity loan. If you don’t have equity or don’t own a house, this is not an option.
Some people finance home flips through traditional mortgages. The downside to this is that you might not qualify for a mortgage if you already have one on the home you currently live in and own.
Hard Money Loan
Hard money loans are probably the most common type of financing you can get for a house flip. Hard money loans come in different types, and fix and flip loans are the most common.
Things to Understand About Fix and Flip Loans
Of all the options you can choose from, a fix and flip loan is one of the best choices. Fix and flip loans offer a way to finance a flip project, and they aren’t overly difficult to get. Here are several vital things to know about how these loans work:
They Are Short-Term Loans
When borrowing money through a fix and flip loan, you’ll probably have only 6 to 12 months before it’s due. Therefore, it’s vital to know that these are short-term loans.
You Can Use Them for Most Real Estate Types
Lenders that issue fix and flip loans offer them for most types of real estate purchases. You can use them to finance single-family home projects, apartments, or multi-family units.
Lenders Base Loans on Completed Values
One of the best parts of fix and flip loans is the criteria lenders use to approve them. Lenders do not base these loans strictly on a person’s credit. Instead, they base them on other factors, including the completed value of a project.
You Can Borrow Up to 90%
Most lenders provide loans up to 90% of a home’s total costs. As a result, you’ll need very little cash yourself to finance your first project, because you can finance the home’s purchase price plus most of the other expenses with a fix and flip loan.
Things to Do Before Buying a Property
One essential thing that you must know when flipping homes is how to examine and inspect a property before buying it. You’ll want to learn as much as possible about the house and the repairs it needs, and here are some tips to help you do this:
Inspect the Entire House Yourself and With a Contractor
Before purchasing a house you are interested in flipping, you should inspect the entire thing. It can be helpful to bring a contractor with you to examine it, and you should spend as much time as necessary completing this step.
Hire a Home Inspector
If you want another opinion on the work a house needs, hire a home inspector. A home inspector might find more issues with the house than you found.
Investigate the Unknowns
If you or the inspector find issues that could potentially cost more to fix than you can figure, you might want to investigate these issues even further. For example, if the roof has problems, you might want to hire a roofing contractor to inspect it.
Research the Title
Researching the home’s title before buying it is also a wise move before you buy it. You can learn a lot by researching the title, including if the home has liens on it.
The Top Objectives When Flipping a Home
As you start thinking about flipping your first home, here are the top objectives to aim for with the project:
Understanding the Depth of the Issues
You’ll definitely want to know the ins and outs of what the home needs before buying it. Thorough research and inspections can help you with this, and knowing it is vital so you can apply for a loan that covers all the costs.
Creating a Realistic Budget
Developing a realistic budget is part of understanding the depth of the issues. It also helps you prove to the lender why you are requesting the amount you ask for with the loan.
Planning a Timeline
A timeline is also vital. The faster you finish the project, the sooner you can sell the house and reap the profits. You’ll also need a timeline to ensure that you can finish the project and sell the house before the loan’s due date.
Appraising an Accurate Finished Value
Additionally, you’ll need to make sure that you have an accurate value for the house when it’s finished. If you can’t sell it for the price you thought, you might not make a profit on the house.
Finally, you’ll need to learn the common mistakes people make when flipping homes so you can avoid them. Not inspecting a house thoroughly is one of these, but there are many others.
Apply Today for a Fix and Flip Loan
Are you interested in learning how to start flipping houses through fix and flip loans? Fix and flip loans provide a solution to the financing part of house flips, and we offer these loans.
If you would like to apply for one or ask questions about them, contact us. We can provide the answers you’re looking for and the money you need to finance your first house flipping project.