Real estate is a lucrative industry if approached with guidance and knowledge. One popular and productive way to invest in real estate is by conducting a fix and flip. In 2023, 308,922 homes fixed and flipped in America. However, this form of real estate investing also comes with many risks. Issues you may face are getting ripped off by a contractor, a house not selling quickly after renovating, or unseen problems with the home’s structure. Also, some investors struggle to find homes to renovate.
Fix and Flips Lenders
Receiving funding for these projects is not simple. Additionally, you will usually need a hard-money loan for fix and flips. Lenders require a steady income and a 20%- 30% down payment to fund the flip. These lenders focus on the construction cost and the after-rehab value. Some lenders consider credit scores, so aim for at least 680. Lastly, if you own assets like a rental property, it’ll improve your chances of approval because a lender will consider it collateral.
Find Homes to Renovate
Once approved for the loan, the individual can search for a home. Most investors contact a realtor to assist with the process. The agent can represent the investor; agents know the local home values and ARVs (after rehab value.) Realtors utilize MLS, a platform exclusively for agents to post and search for properties. Once you know your loan amount and the level of rehab you can take on, you can submit offers.
Another method to find potential properties to fix and flip is to utilize a wholesaler. A wholesaler has exclusive deals that are typically off-market and not listed on MLS. The downside is that these homes usually come as-is, and no inspections are conducted, so the investor may go in “blind.” Lastly, not using a licensed realtor to run real estate comps may lead to the investor overpaying for the home.
Pull Work Permits with the City
When completing a renovation, investors typically need to obtain permits to begin the rehab process. Depending on local regulations and laws, the investor will get permits for demolition, building, electrical, and plumbing. A licensed or general contractor usually obtains these permits since they are licensed and insured.
Building permits cover significant changes such as room additions and wall removals. Electrical permits cover panel upgrades or rewiring the electrical system. Plumbers will pull the permits for new pipes, sewer lines, or the addition of another bathroom. Lastly, you’ll need to ensure your project complies with all zoning permits, or you risk being shut down and paying huge fines.
Home Demolition Process
After approval of all the permits, the first step is to begin demolition when completing a fix and flip. This stage involves bringing the property down to the wooden studs. Essentially, the contractor removes the entire interior of the home, including walls, flooring, cabinets, drywall, and plumbing fixtures, bringing the house down to the bones to start fresh.
Sometimes, the contractor can encounter unexpected issues, such as structural problems, which consume most of the construction budget. Safety must be first when completing a demolition, especially in Pennsylvania, where these older homes are located. Many older homes have hazardous materials such as lead paint, mold/mildew, and asbestos. Ensure you hire a company with experience to avoid injuries or mistakes involving homes to renovate.
Fix the Roof and Rough in Plumbing/Electrical Work
The next step in this process is to replace the roof or patch any holes in the ceiling. Rough in the plumbing by replacing the cast iron sewer line with PVC; plastic lasts much longer than metal. The copper water line can be replaced with pex plumbing when remodeling the bathroom.
The electrician will install the new wiring and upgrade the electric panel from 100 Amps to 200 amps. These skilled tradespeople licensed and insured to pull their permits. This stage will be time-consuming because it’s the completion of most of the heavy lifting and gutting of the home. Once done the floors and walls, the plumber will return to install toilets, showers, and sinks for the next step in the fix and flip.
Finishing Touches on the Fix and Flip
The final stage of renovating a house is the finishing touches, which include installing the floors, putting up drywall, and installing doors and windows. When completing a home rehab, you want materials that are similar to those of homes recently sold in the area. It’s crucial to match quality to achieve the after-repair value. The amount of money spent on materials will vary from one neighborhood to the next, along with specific features like a finished basement or a roof deck.
List the Fix and Flip on the Market
When done the construction side of the fix and flips, it’ll be time to get the property sold. Before finishing the touch-up work, discuss the expectations with a real estate agent. The agent will determine the exact listing number and discuss how they will market the home.
Agents hold open houses to draw attention to the property and post on MLS and Zillow. On average, a home sits on the market for roughly 30 days, but consider factors like the local market and off months. As an investor, you will want to work with an experienced and knowledgeable agent who will go above and beyond to get results with homes to renovate.
Successful Fix and Flip Opportunity
Renovating homes and reselling the properties can produce solid income. However, huge risks associated with fix-and-flipping homes. Having an experienced agent, an honest contractor, and a lender with responsible loan rates is vital. Fix-and-flipping is a team effort, and everyone involved needs to be on the same page to gain success. Knowing your budget, construction costs, and after-repair value is essential.
If it’s your first fix and flip, start with a simple rehab, usually a house close to turnkey and requiring minimum repairs. When purchasing a home, understand you have multiple options, but the route will depend on your goals and needs. Never approach the fix and flip process without proper guidance. Renovating real estate can either make or break an individual financially.
