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Posted on 01/13/2022 in Hard Money Loans

How to Fix and Flip in a Seller’s Market

Right now could be the perfect opportunity for first-time buyers to dip their toes into rehabbing and flipping homes.

House flipping profits are at the highest they’ve been in 20 years, with fewer people fixing and flipping homes. 

The US is still in a seller’s market because of a decline in available house listings. People looking to purchase a new home will face plenty of competition, with fewer options to pick from.

The good news is that house flippers can still find promising investments (with a bit more effort) to purchase and quickly turn around for a great profit. 

However, in order to do so, they’ll need a large amount of capital quickly, which might not be an option going through banks and traditional money lenders.

In these situations, hard money loans, or private money loans, are preferable to traditional mortgages because of their ease, quickness, and flexibility to work with people with lowered credit scores.

Continue reading to learn more about how to find the perfect fixer-upper to flip in today’s seller’s market, and how hard money loans can help.

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How to Find the Right House to Flip

When it comes to finding houses to flip, searching for local foreclosure auctions is a good option. Foreclosed homes are attractive to house flippers because these homes will be sold under their market value and their owners are eager to sell them.

Foreclosed homes can be found many ways including searching Zillow or searching bank websites for their foreclosed homes. You can also visit your county’s offices to find additional foreclosed properties that may not have been listed online yet. 

Flipping isn’t exclusive to foreclosures, however, so keep an eye out on properties in your area that have great potential and a low asking price. Other common places to find good properties to flip are through probate sales, estate sales, other types of  property auctions, and door-knocking.

How to Budget Correctly Using the 70% Rule

House flipping, when budgeted correctly, can be an extremely profitable business for real estate investors

Often, these investors stick to the 70% rule to help them find the most attractive real estate investments. The 70% rule helps house flippers determine the maximum price they can pay for a property to make a profit.

The rule works like this: After-repair value (ARV) x .70 – estimated repair costs = your maximum buying price.

For instance, if you expect the after-repair value of your house to be $250,000, take $250,000 x .70. This leaves you with $175,000. Now, you’ll need to subtract the cost of repairs (and labor) to renovate the home. Let’s say you expect it’ll take $50,000 to repair the home. 

In this case, the 70% rule dictates you shouldn’t spend any more than $125,000 to purchase your next flipping investment.

Determining After-Repair Value

In order to use this rule, you’ll need a way to quickly determine the after-repair value of the house you’re planning to flip. One way to do this is to look at the price of comparable properties in the same area. 

Once you get more experience, you’ll learn the average amount it costs you when you flip. Then you can regularly use that average and adjust for special circumstances when looking for new properties.

Estimating Repair Costs Using the $20 Per Square Foot Rule

Standard house renovations typically include:

  • New flooring
  • Paint
  • Updated kitchens and bathrooms
  • New windows
  • Blinds
  • Landscaping

Estimating the exact repair costs will be difficult, which is why many flippers use the standard “$20 per square foot rule.”

For example, if you’re looking to purchase a 2000 square foot home, expect to spend roughly $40,000 on renovations and repairs. 

How to Get Funding Quickly

As soon as real estate agents and banks list their houses for sale on the market, you need to act quickly to secure that promising investment. To do that, you’ll need a large sum of money, fast.

In these time-sensitive situations, traditional mortgages simply are not an option — they take weeks, and by then somebody else has already purchased the property.

However, with a hard money lender, you can get approval for a cash loan in 7-10 days.

At Marquee Funding Group, you get same-day approval of loan amounts from $50,000 to $20 million. Marquee Funding Group specializes in lending in California and Colorado but will consider your fix and flip in high end markets all across the USA

Why Traditional Mortgages Don’t Work for Fixing and Flipping

While traditional loans make sense for purchasing a home for your family to live in for 20 – 30 years, they simply don’t make sense when it comes to flipping and fixing homes.

Reasons why traditional mortgages don’t work for fixing and flipping include:

  • Traditional mortgages move too slowly for a competitive housing market 
  • Providing income and W2s can be restrictive for self-employed house flippers
  • Traditional lenders don’t like giving money out for houses that are in poor condition

Reasons to Get a Hard Money Loan

Hard money loans are private money loans, given from a private individual or funding group, rather than a bank or government institution. 

Because the lenders are private companies, they provide additional flexibility. Traditional banks that have more rules and regulations.

Hard money loans are advantageous to people who are:

  • Self-employed and have difficulty providing W2s and proof of income
  • Investors looking for quick capital to buy houses to flip
  • Having difficulty getting a traditional mortgage because of poor credit
  • Looking for a short-term or bridge loan so they can purchase a home while selling their existing home

Hard money loans offer many benefits over traditional mortgages, including:

  • A quicker turnaround than traditional mortgages: When you need money fast to purchase a promising investment property, hard money loans are the way to go.
  • More flexibility with a lower credit score: Hard money loans are asset-based, meaning they use collateral from the buyer to ensure payment in case the buyer defaults. 
  • Quick cash: For investors looking to win a bidding war, approval and closing is much quicker.

Get Started Fixing and Flipping Houses with Marquee

Marquee Funding Group, Inc. is a full-service mortgage firm specializing in hard money private equity loans.

Marquee funds loans in the consumer and commercial marketplaces by offering funding to borrowers who struggle to get institutional financing. If the deal makes sense, we’ll do it.

Are you a house flipper looking to succeed in today’s seller’s market or an investor looking to improve their portfolio? Marquee Group wants to help you. 

Contact us today and submit your loan scenario to see if your property investment is the right fit to get the financing you need.

Photo by Thirdman from Pexels