TV ads might make it seem like flipping houses is so easy that a small child could become an overnight millionaire. Even though it is possible for average people to make huge profits this way, it is a business like any other, and it helps to educate yourself before plunging in. The things that you need to learn are how to find the right houses, fix them up for a modest sum of money, market the houses after they have gotten rehabbed, and of course, how to finance your purchases.
How Do People Start Flipping Houses
First, take stock of the skills that you will bring into the business. The first two areas to concern yourself with are finding good prospects and financing those properties. You see, traditional bank mortgages may not work with house flippers because it takes a long time to qualify for a mortgage. If you find a good deal, you probably want to grab it before it catches the attention of other investors.
Hard money lenders are usually private individuals or groups of individuals who would like to profit from real estate by offering loans to real estate investors. They do not require all of the time and documentation of a bank or regular mortgage company. Because of this and associated risks, hard money lenders usually charge higher interest rates than banks do.
But these aren’t usually 30-year mortgages either. They are intended to last for anything from several months to a couple of years while the building gets fixed up and sold. Real estate investors take advantage of these quick cash loans in order to get their money fast to make sure they can get a deal before somebody else does.
The cost of rehabbing a home also need to get considered. These can vary quite a bit depending upon the work that an investor can manage himself or what he can contract out to skilled workers. It is really helpful to understand construction before flipping houses. If not, this is an area that most home flippers end up learning quite a lot about.
In any case, a home that costs too much to fix might not turn into a good deal. Even though the house might have been sold cheaply, the cost of repairs can eat into profit. On the other hand, many home owners want to get out of a home for a variety of reasons besides major repairs, and it is still quite possible to find good deals.
Most good real estate flipping guides will suggest figuring out your break-even point on each home. This takes the price of the home, lending fees, and repairs into account. Then a potential investor needs to find the probable sales price of the home they intend to buy. With that in mind, it is possible to find good deals on the market. It just might not be so easy that any young child could do it, or there would be a lot of rich children walking around.