As a lender we talk to new home flip investors regularly. The following are some suggestions regarding that first deal.
- Look for lower priced homes that with relatively reasonable renovation budgets. Townhouses with ARV’s in the $150-250K range are easy deals to complete. Think Baltimore, PG County, Newark DE, and Philadelphia. Target homes up to 1,500 sq ft. More than that and the costs of renovation expand substantially and you will need more cash to invest.
- For your first deal, avoid major projects; renovations more than $100,000 require more involvement and money.
- Interview 3 contractors. Find out if they are experienced in working with home flippers. At the lower end of the price scale, you will want contractor grade trims (especially for homes that may be rentals). Your contractor needs to be familiar with what is needed.
- Avoid the lowest cost contractor, they likely will take longer and take shortcuts such as using tradesmen that are moonlighting from their regular day jobs. The cost in delays will not be worth it.
- Choose in stock product at Home Depot or Lowes or a local contractor yard. You will not want to wait for custom order product.
- Don’t renovate with your taste and price scale in mind. The house should reflect the expectation and budget of the neighborhood and price point. Neutral colors are by far the best.
- Visit your site at least every other day to ensure progress is being made. You can catch poor work, misunderstandings, and other problems early. Your property needs to be close enough that you can do this regularly. Make sure your credit is in order. Many lenders have a minimum FICO Score, (ours is 620). Pay your bills, and if you have not established any credit history, get some credit cards and repay them on time.
- Determine how much money you have to invest. For first timers, you will need approximately 30% of the property purchase value to complete a deal. You will need to show proof that you have possession of the funds to close a hard money deal.
Best of luck on your first of many successful flips!