Flipping homes can be an exciting and lucrative business. For people who are creative, have an eye for design, are good with their hands, and who like to take a chance, the idea of flipping homes may seem like a dream. And it can be a money-making machine: the average gross flipping profit for 2019 was $60,000. But before you scoop up a low-cost property, and start smashing down walls HGTV-style, there are some things to know before diving into the home flipping business. Hard Money Bankers, a trusted money lending company that is known for providing fast and flexible financing, is sharing some of the things you should know before flipping your first home.
#1. Understand the 70% rule
The 70% rule is the golden rule when it comes to flipping houses. Experienced house flippers stick to the 70% rule, usually no matter what. It means this: investors should only pay 70% of the “after repair value”, or ARV, of a property, minus the cost of the repairs needed. This rule helps you keep in mind the cost of repairing and upgrading the property and makes sure that it’s worth your time and investment in flipping the home.
#2. Location is key
Professional house flippers know that location is everything when it comes to flipping properties. From the city, to the neighborhood, location can make all of the difference when trying to flip a home. It doesn’t matter how good of a job a house flipper does, if the location isn’t good. Take your time in doing market research. Good markers to look for are real estate prices and employment rates. You may want to avoid areas that already have a big number of properties for sale, because this means that for whatever reason, homeowners are not biting in this area. In 2016, house flippers saw profits of at least 80% in at least 12 U.S. cities, including East Stroudsburg, Pennsylvania (212.1%), New Haven, Connecticut (104.8%), New Orleans, Louisiana (97.6%), Cincinnati, Ohio (88.5%), and Buffalo, New York (85.1%).
#3. Good bones make a difference
Anyone who has undertaken home renovations knows that once you start peeling back the layers, you can encounter some wild surprises. Only invest in properties to flip if they’re structurally sound, and don’t need any major renovations. Things like a cracked foundation can financially ruin a project. At least in the beginning, choose properties to flip that only need cosmetic work. When it comes to things like structure, electric, and plumbing, make sure you, or someone you’re with, is educated on those topics, so you can make educated decisions.
#4. Learn from the pros
When you’re thinking of flipping your first home, find a guide or a mentor to lead you through the process. This can take a lot of the guesswork out of the steps. Find a house flipper in your area, reach out, and ask to shadow them or assist them with a project. Research successful house flippers online and ask for tips. House flipping can be competitive, but because it’s so creative and individualized, many house flippers are proud to show off their work, and their process. It takes time to acquire the knowledge necessary to flip a house, and if you’re thinking of diving in, learning from a mentor can make all the difference.
Related Article: Philadelphia Hard Money Lenders: How Hard Money Bankers (HMB) Helps Flippers
About Hard Money Bankers
Hard Money Bankers is a full service and self-funded money lending company. It prides itself on providing fast and flexible financing for both residential and commercial investment. Hard Money Bankers works to make the lending process as smooth and fast as possible. They currently lend in Maryland, Washington D.C., Virginia, Pennsylvania, Delaware, and New Jersey.
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