At the time of this writing, flipping houses is on the rise throughout the United States of America. In fact, studies show that the first quarter of 2020 featured more flipped homes than at any point since 2006, a jump of at least 2 percentage points. With real estate flipping on the rise, it stands to reason that more than a few newcomers are finding their way to the industry.
While there are plenty of opportunities available for individuals to build capital through real estate, leaping into a renovation project should not happen until sufficient funds have been accrued. Like many other entrepreneurs in life, we understand the desire to leap first and look later however, today’s conversation will clarify why you should avoid this technique.
Three Reasons to Wait for Sufficient Funding in Real Estate Development
Right now the house flipping market is booming out west. From Texas to Arizona, savvy property investors are accumulating funding to purchase, rehab, and flip their housing investments for profit. With that being said, there is one issue that individuals are struggling to overcome: starting work with sufficient funding.
While you may feel driven to start a rehabilitation project without proper funding, there are a couple of reasons why you should hesitate to embark upon that path. Let’s take a look at three key reasons that you must have sufficient funding in place before breaking ground on your rehab project.
1. The Second Loan Is Harder Than The First Loan
Acquiring a financial loan to complete a house rehabilitation seems pretty simple. Just meet up with your bank, decide on how much you can afford to take out, and let the rest take care of itself… right?
Well, not exactly.
For first-time flippers, it is always better to take out more debt than you might need. If you take out a loan from a financial institution only to see it fall short of your needs, you’ll likely have trouble working with a second lender. Many private money and hard money lenders will not think twice about rejecting a second loan request.
2. Chances of Failure Dramatically Increase
Whether we are remodeling our home or flipping an investment property, the true extent of hidden costs will not be known until we break ground on our project. Purchasing and flipping a home will require digging deep into the structure of the property, leading to potential costly issues at a later date.
Some common issues that real estate renovation professionals run into are electricity and code issues, improper building techniques, deep rot and pest damage, and finally hidden dangers such as asbestos. If you aren’t equipped with the funding necessary to overcome each and every one of these hurdles, you could be stuck with a dead project.
3. Complications Related to Title Insurance
Very few things are as frustrating or necessary as paperwork. Included in the paperwork we’ll have to navigate is our title insurance. Once your home has begun its renovation, it can be hard for a new lender to obtain title insurance due to the fact that construction is likely already underway.
To make life easy during your next renovation or house flipping project, consider working with one of the top hard money lenders in Arizona. Fast and convenient funding helps get your project going!