Posts

In the Rehab Process? Here’s How to Stay On Track and Under Budget!

Taking on a fix-and-flip project can be a great way to make a profit in residential real estate. With a smart investment and the right planning, you stand to make a significant profit by flipping a property and selling it. Before you get started with any rehab project, though, there are some things you need to know about staying on-track and sticking with your budget.

Plan Your Rehab Accordingly

Start by planning your fix-and-flip project during the right time of year. In general, the easiest times to sell residential real estate are during the spring and summer. With this in mind, it may make the most sense to tackle your renovations during the fall and winter months.

Set Aside a Contingency Fund

No matter how carefully you plan and budget for your rehab project, there are almost always going to be surprise repairs and other unexpected expenses that arise. The last thing you need is to end up going over your budget as a result. By setting aside a contingency fund that makes up between 15% and 20% of your total renovation budget, you can avoid running out of cash.

Account For “Hidden” Costs

There are a lot of obvious expenses you’ll undertake during any fix-and-flip project. Hiring contractors and buying building supplies are a couple of those given costs. However, there are plenty of less obvious expenses you may end up facing that you won’t want to overlook.

Specifically, be sure to budget for costs related to permits, property taxes, ongoing HOA dues, and closing costs/Realtor commissions once you sell the property. These can quickly add up and affect your bottom line if you don’t plan accordingly.

Don’t Overlook the Location

Location is one of the most important factors prospective buyers look at when buying a home. With this in mind, you’ll want to do plenty of research on the location of a potential property before you buy. While you may spend more money up-front investing in a property that’s located in the middle of a busy city, you’re also likely to get a larger return on your investment than a property in the suburbs.

Always Have a “Plan B”

Any experienced real estate investor will encourage you to have an exit plan in place for any project. While it may not be fun to think about, it’s important to plan for a “worst-case scenario.” For example, what will you do if your flipped property doesn’t sell within a few months of being on the market? Perhaps it will be necessary to rent out the property to begin bringing in income and try selling again when the market is looking more promising.

Borrow Responsibly

No matter what your plan is for fixing and flipping a property, borrowing from a reputable lender that you can trust is vital. Looking for a hard money loan for an Arizona real estate property? Hard Money Lenders AZ has you covered! Contact us today at (480) 999-6183 to find out more about our borrowing options, especially as they pertain to our excellent rehab and fix-and-flip loans.

image of fix and flip for sale

How to Market Your Fix & Flip to Sell Fast!

You’ve got your fix and flipped all fixed — so what about the flip? With a fix and flip, you want to sell as fast as possible. But that’s the rub, isn’t it? How do you sell fast? You can’t control the market. But you can control a lot of elements of your listing.

1. Price your fix and flip properly.

The worst thing that can kill a fix and flip is pricing it too high. Look at the comparable properties and think about your financial situation. If you’re going to be losing a lot of money holding onto the property for an extra couple of months, it may be better to discount the property now and sell it right away. A lot of fast-talking isn’t going to make up for the fact that you’ve priced yourself out of the market. And even a smooth operator isn’t going to be able to defeat most bank appraisals. Price correctly and fight less.

Of course, there’s always the chance someone will fall in love with a property priced over the market; but that’s a gamble. It’s best used when a property has something very unique about it.

2. Use your media wisely.

Video walkthroughs are practically expected now. Spend the time to get a professional photographer and videographer. Have them do video walkthroughs or even 3D walkthroughs. Stage the property nicely. Many people look online before buying a home. A lot of them aren’t even using a real estate agent; they just want to contact you directly after seeing the home. Don’t bother trying to obscure things about the property, such as making it look bigger with a fish-eye lens; that’s a waste of your time and theirs. You want the property to shine, not be misrepresented.

3. Invest in content marketing.

A blog and social media account is a great way to start reaching out to people. People who are looking to purchase a home in a year might follow you today, but that can secure a sale in a year. The more people you have exposure to, the more likely you already have a buyer watching. And content marketing pays for itself over time; though it may take some time and money to build it up now, it’s going to start bringing you in more people as you scale.

4. Build your following.

The more followers you have, the more exposure you have. A lot of people ignore followers because it’s not likely that they’re going to build a house. But build a following of real estate agents and professionals, and you’ll be in direct contact with people who are looking to buy properties. You can network with real estate professionals in your area and find out more about what their clients are looking for. And that’s only going to help you in future, because it also means that your renovations are going to be more applicable to the desires of the market. The more you can connect with people and interact with them, the more ammunition you’ll have.

What about showings? The truth is that open houses and scheduled showings really don’t matter as much as they once did. Often, people already kind of know what property they want (from all their research online) before they even take a look at it. So, don’t rely on the traditional methods to help you sell your fix and flip. You’ll need to be using the new media and reaching out to a broader audience if you want to sell.

Unprofitable Flips Happen! But How Do You Come Back?

Fix and flip opportunities have become more popular, allowing individuals to spend less on real estate investments, fix the issues with the home and then sell it for a profit. However, flipping houses isn’t always as easy as it may seem, especially if you’re a fan of the house flipping reality shows. While it can be an excellent way to make money on real estate investments if you have the right experience, it’s also easy to lose money on the process, especially if the home ends up requiring more work than you initially calculated or it takes longer than expected. The good news is there are ways you can recover from an unprofitable flipping experience. The following tips will help you make better decisions the next time around.

Watch the Market

The real estate market is constantly changing, and it’s best to keep a close eye on these changes to ensure you make the wisest investments. Talking with local realtors about demand, pricing and other factors can help you better gauge the best options for your next flip. Also, pay attention to the time of year. Winter is a lower time for sales in general.

Avoid Overpaying

It’s easy to make a mistake and pay too much for a property, dooming your success from the start. For real estate investors who flip property, evaluate the after repair value of the home and work your way backwards. Deduct the amount you expect to pay on repairs and renovations to give you an idea of the highest amount you should pay for the home. Checking the MLS for comparable homes in your market area can help you get a clear picture of how much you can expect to sell the home for when you’re done fixing it up. Don’t hesitate to get multiple quotes.

Expect the Unexpected

It’s rare to complete a home renovation without a few unexpected surprises along the way. When you plan for these surprises, you will reduce those expenses that can make your flip unprofitable. In addition, only fix what’s necessary to turn a profit on the property. Repair anything that’s broken, update anything outdated and choose one or two elements to splurge on to make the property more attractive to buyers. Don’t focus on making the house perfect. Instead, do just enough to make the home appealing while turning a profit.

Work with a Reliable Contractor

One of the biggest problems house flippers experience is delays in the project due to the contractors they hire. Only work with reputable contractors who have a good track record for staying on schedule. Get referrals from trusted sources and others who work in the industry. If a contractor isn’t meeting your expectations, make a change early in the project, rather than giving multiple chances, only to find yourself scrambling to meet your deadlines.

Stage the Property

When you’re ready to sell, staging the property can be the best way to sell the home for a fair price as quickly as possible. While home buyers like to be able to visualize their own furniture in a space, that can be challenging if you’re showing off an empty property. The good news is you only need minimal furnishings to provide the desired effect. Even though staging isn’t necessarily a cheap option, it’s a necessary step to help potential buyers focus on what the home can provide them.

When you learn to accurately value a property and minimize your costs without sacrificing quality workmanship, you will soon find these real estate investments more profitable.

image of coins spilling out of jar

3 Reasons to Make Sure You Have Sufficient Funds For Your Real Estate Project!

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 issuesimproper building techniquesdeep 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!

image of for rent sign

How to Get the Most Out of Rental Income

Real estate investing has rapidly grown over the years with more people choosing to buy real estate to either flip for a profit or rent out for a passive income. However, many people who are new to this type of investing may not be fully aware of how to make the most of their purchases. If you want to maximize your profits from real estate investments, the following ideas can help you think more creatively.

Allow Pets

Many landlords miss out on tenants because they’re more concerned about the damages pets can do and take the easy way out of dealing with it by not allowing pets. If you want to attract a larger pool of potential tenants, allowing pets, even with some reasonable limitations, can do that for you. Be sure to collect a pet security deposit to cover any damages that may occur. This type of deposit is often nonrefundable, but tenants are more than happy to pay if they can get a nice living environment for themselves and their fur babies. This is typically around $250. It’s also possible to charge an extra $25-50 per month for pet rent if you’re still concerned.

Rent for Shorter Terms

Not everyone is looking for a long-term rental to spend a year or more. Some people travel for work, while others may just want a place to rent for a long getaway. Offering short-term contracts can open up your tenant pool significantly. Some renters prefer shorter six-month leases, while others would rather rent month to month so they can move quickly if needed. Think about the needs of your target audience and decide whether these shorter-term rentals are a better option for your rental property.

Furnish the Property

This is especially beneficial if you are considering short-term leasing, such as for business people who may be staying for a contract period. Some businesses will even rent properties with furnishings and move various business people in and out as their contracts dictate. If your property is located close to a college, providing furnishings can make your rentals more appealing to students who may be looking for alternatives to on-campus housing. There are many reasons individuals may be looking for furnished rentals that provide most of what they need. All they need to do is bring themselves, their clothes, and personal effects. Before you furnish any apartments, though, take a look at other local furnished apartments so you can remain competitive. While furnishing your properties is costly at first, it can pay off in the long run.

Add Extra Amenities

People are always looking for things that make a rental property stand out. Consider adding some extra amenities to make your rentals more attractive than the alternatives. Alarm systems, for instance, are an excellent addition, especially in more urban properties, to not only give your tenants greater peace of mind but to show them you are putting in the extra effort to make their stay in your property more enjoyable.

When investing in rental properties, it’s crucial to find the best ways to ensure a steady flow of income. Thinking outside the box is essential to your success. When you consider these ideas and come up with a few of your own, you can make your rental property truly stand out.

image of home and money held in hands

How Hard Money Lending Can Benefit You

Gone are the days when the thought of hard money lenders evoked images of shady lenders doing deals in dark alleys. Hard money lending has evolved into a reputable financing source for many people. There’s a lot of things that hard money lenders can do for you.

The Benefits of Hard Money Lending

Fast Process

Traditional lenders engage in a slow process, even if you have a good income and a good credit score. Hard money lenders take a different approach. Hard money lenders lend based on the collateral securing the loan. With this approach, they are not concerned about how you can pay the loan back. A hard money lender will just take the collateral and sell it in order to get repaid. That being said, your collateral’s value takes precedence over your financial position. Because hard money lenders are focused on collateral, the loan can be closed much more quickly than a traditional one. Hard money lenders do linger going through your loan application with a fine-tooth comb. They don’t spend time reviewing your income or verifying your current income. As a result, the loan process moves more quickly than a traditional loan. You can close a deal quickly with a hard money lender. And that’s very important in a hot market. You’ve got to be able to move fast.

Flexibility

With a hard money lender, you get some flexibility when compared to a traditional loan. Each deal is evaluated individually, instead of utilizing a standardized underwriting process. In addition, a hard money lender is much more willing to talk with you. It may be possible for you to tweak some things, such as repayment schedules. Instead of dealing with a bank with strict policies, the policies of a hard money lender are flexible.

Approval

Since the most important criteria for a hard money lender is collateral, approval is much more likely. A hard money lender will lend only as much as the property’s worth. If you need to borrow against a different property, that’s the value of that property will be what the hard money lender is interested in. Negative items on your credit report or previous foreclosures are much less important to a hard money lender than a traditional lender. Keep in mind that many hard money lenders maintain loan-to-value ratios (LTV). Their maximum LTV ratio may be from 50 percent to 70 percent. That’s a low ratio and hard money lenders know that they can sell the property quickly to get their money back. So, you’ll need some assets to qualify for a hard money loan. The bottom line is that your approval is much greater with a hard money lender.

Keep in mind that hard money loans make good sense for short term loans. That’s why so many fix-and-flip investors use hard money loans. Investors own the property just long enough to increase the value of the property. Then, they sell the property and repay the loan. This is often done within a year. If an investor plans for a longer time, he usually refinances for a better loan.

All around, the benefits of hard money lending are good when you know what you’re doing.

 

image of couple fixing and flipping a house

4 Things to Avoid When Fixing and Flipping a Property

Diving into the real estate investment world can be very exciting—and there’s certainly a lot of money to be made. If you don’t have much experience or haven’t done your research, though, your first fix-and-flip could end up being a disaster. By being aware of some of the most common mistakes investors make with fix-and-flip properties and how to avoid them, you can come out on top.

Paying Too Much for the Property

Start with knowing how to determine a fair asking price for the property in question. Many factors need to be taken into consideration when deciding how much to pay for an investment property, including:

  • the location
  • square footage
  • number of bedrooms/bathrooms
  • overall condition

And of course, you’ll also need to consider how much you’ll be able to realistically sell the property for once you’ve made the improvements. Make sure an investment property is going to be worth your time and will actually pay off in the long-run. Otherwise, you’re setting yourself up for failure right from the beginning.

Doing Too Much (Or Too Little)

Deciding on how to spend your renovation budget on a fix-and-flip property is a very precise science. You’ll need to have a solid understanding of which improvements and repairs will ultimately yield you the best return on your investment. From there, you can make smart choices moving forward.

For example, did you know that adding a wooden deck or patio on an investment property can bring in as much as a 90% return on your investment? Other projects to consider that can really pay off include bathroom/kitchen upgrades and landscaping improvements.

Choosing the Wrong Professionals

Even if you consider yourself a DIY expert, you won’t want to take on an entire fix-and-flip yourself. Instead, your time and resources will be better spent making big-picture decisions and overseeing a team of experienced and licensed professionals.

The contractors you choose to trust with your property’s repairs and improvements can have a huge impact on the results—and on your bottom line. Take the time to screen and interview potential contractors, and always make sure they’re properly licensed, bonded, and insured.

Making Polarizing Design Choices

Ultimately, your goal with an investment property should be to appeal to as large of an audience of potential buyers as possible. This means that you’ll want to avoid making polarizing design choices and keep things neutral instead. As much as you might love the idea of installing a bright and bold backsplash tile in the kitchen, you’ll probably get better feedback from potential buyers if you stick with something neutral and in-demand, like a white subway tile backsplash.

As you can see, there’s a lot to keep in mind when it comes to taking on a fix-and-flip property. By starting with the right purchase price and choosing a team of reputable contractors to carry out your projects, you’ll be well on your way to making some money with your first real estate investment!

Differences in Arizona Fix and Flip Loans

Fixing up and flipping a house can be a lucrative investment, but first you need the investment. In the state of Arizona, many savvy investors use what are known as “fix and flip” loans to purchase and then quickly renovate a property to get ready for sale.

Keep reading to learn more about fix and flip loans and to determine what type may be the right choice for you and your project.

Why a ‘Fix and Flip’ Loan?

You may be wondering why you should consider a fix and flip loan as opposed to a regular bank loan. Well, fix and flip loans actually come with many advantages over traditional loans.

To start, fix and flip loans are intended for shorter designated periods of time and can even be approved faster than traditional bank loans. Experienced fix and flip lenders also do not require as much background investigation or have as stringent qualification standards as traditional banks, giving people a greater likelihood of getting approved.

Types of Fix and Flip Loans

There are three main types of fix and flip loans in Arizona. These include the following:

  • Hard Money Loan – this is highly convenient type of loan that is intended for people of all skill and experience levels (when it comes to flipping houses). Funds are approved (within 24 hours) and received quickly, allowing projects to get underway fast. While these types of loans do often come with higher interest rates, they usually include shorter terms that many people use to make a profit off of their house quickly.
  • Home Equity Line of Credit loan – A Home Equity Line of Credit or “HELOC” loan works kind of like a credit card. The investor is given a designated line of credit that is based on their existing property’s value. While the project is underway, interest is only charged on the amount borrowed during the credit line period. Now, it is important to note that this type of loan usually comes with repayment terms that may not be right for everyone: interest-only payment for the initial 5-10 years, followed by both interest and principal payment. Furthermore, while interest rates are lower, approval can take up to a month or longer.
  • Bridge Loan – This is a temporary short loan that is used only during the gap between real estate transactions. In other words, you can purchase a house you intend to flip without having to sell another property first. Interest rates are usually mid-range, but it’s worth pointing out that this type of loan often results in the investor having to pay two mortgages at once. And while the loan period is shorter, approval time may still take a bit longer than a hard money loan.

Which Loan is Right for Me?

The right kind of fix and flip loan for you will depend on a few different factors, namely your personal experience in flipping houses, the amount of time you have and the type of property. For example, those who need to close extremely quickly may benefit from a bridge loan, while those who need longer terms may look to a HELOC loan.

Nevertheless, hard money loans will be the right way to go for many due to this type of loan’s lenient requirements and fast approval / fund delivery. If you already have your project planned out and need financial assistance fast, this will likely be the best choice for you.

Are you ready to learn more about how a fix and flip loan can get your project underway? Contact the experts at Barrett Financial Group today!