The first and most important steps to fix and flip a property is selecting the right property and purchasing it at a discounted price.
Since the average timeframe to complete a fix and flip project in the U.S. is 6 months, it does not leave much time to realize any appreciation on the property.
Therefore, it is crucial for real estate investors to purchase the property at a discount and to make the right value adds to increase the value of the property.
Succeeding at the flipping game requires patience, knowing how to analyze the deal, extensive knowledge of an area and having the ability to act quickly when a good deal arises.
Great deals are plentiful and easier to find in a down market.
Yet, regardless of the economic climate, patient real estate investors can find opportunities in both a buyers or sellers market.
Being over zealous to acquire a property is a common mistake real estate investors make.
Wise and success real investors sometimes need to review hundreds of deals before pulling the trigger on a property.
Analyzing the Deal
The best real estate investors look at a deal and determine the property's current value to see if possible the property is underpriced.
Investors should think about a property's current value as if they were to purchase the property today, how much could they sell it for tomorrow?
Then the investor will need to project construction costs and what the after repair value (ARV) of the property will be.
Since the ARV is a guesstimate, its best to error on the conservative side.
This is where having extensive knowledge of an area comes into play and can help make or break your deal.
Knowledge of an Area
To better make your purchase decision, it is useful to know what comparable homes are selling for in the area.
Its also helpful to know what renovations or additions will add maximum value to your potential property.
Also, being in a great school district and in a low crime area are important statistics to home buyers.
Good deals do not last long on the market.
In order to act as quickly as possible, its important to have your financing in order.
Many fix and flippers do not have the complete funds to purchase properties they are interested in.
Therefore they require the help of partnerships or hard money lenders.
Partnerships can be great to reduce risk and if your partner has past experience flipping in the area then that is a major plus.
If you decide to go the hard money lending route, its best to line up a lender before you make an offer.
Lenders will want to see you have completed a few fix and flip projects within the last 24 months.
Hard money lending is heavily based on relationships.
Once you gain the lenders trust they will give you better terms and rates.
Many of these lenders can fund deals in less than a week which will give you as the buyer a major advantage over those who need traditional bank financing which can take over 30 days to be approved.