3 Quick Tips of Rehabbing
Ideally, you want to have some capital or credit set aside to flip houses. However, you can also use other people’s money to flip houses and use only a fraction of your own money.
Getting a hard money loan is easier than getting a loan from a bank. There is less paperwork involved and your credit history is not as big of a factor. Most hard money lenders do not check your credit. This is only a brief overview of how hard money lending works. Every hard money lender has his or her own terms, conditions, and policies. Each state has its own unique laws, rules, and regulations.
FIND A PROPERTY
New investors often get discouraged due to a lack of inventory in their area. MLS listings are the easiest way to find properties for sale but do not always offer the best deals. While every market is different, you can almost always find good properties to flip. Here are some places to look for cheap real estate:
Bank Owned/REO Properties – Major U.S. banks are motivated to sell their foreclosed properties. Why are banks so motivated to sell these properties? Banks have “carrying costs” each month a house is in its inventory. Carrying costs include property tax, insurance, and maintenance, such as landscaping and/or snowplowing services. There is also the added risk that squatters will vandalize a property. This causes thousands of dollars in damage that the banks are forced to pay for. All of these factors create an opportunity for you to purchase bank-owned properties at a deep discount.
HUD/VA Properties – HUD and VA Homes are also referred to as government foreclosures. A HUD property is a house with an FHA-backed mortgage that went into foreclosure. A VA property is a house with a VA-backed mortgage that went into foreclosure. You can often pick up cheap HUD and VA properties.
Off-Market Distressed Properties – These are homeowners who need to sell quickly. If you move quickly, you can get houses for 30% – 50% on the dollar.
WHAT REPAIRS TO DO AND NOT DO
Some people get carried away and do too many renovations. They find themselves trying to sell a property that is over rehabbed for the neighborhood. You don’t want to flip the most expensive house on the block. Do renovations that bring a house up to standards on par with other houses in the neighborhood.
Kitchen and Bathrooms: Kitchens and bathrooms sell houses. Remodel them from top to bottom. If you are not sure what materials to use, look at homes that have sold for top dollar per square foot in your area and copy them.
Flooring: In most flips, use laminate hardwood flooring in the major living areas and carpet in the bedrooms. Laminate hardwood flooring is difficult to tell apart from real hard wood. It is not only much more durable, but also scratch resistant.
Paint: Paint every room in the home. If the walls have a lot of minor flaws in them, use flat paint. Otherwise, use eggshell. And always use earth tones. Anyone can decorate around neutral colors.
Landscaping: Donald Trump himself stated that you get a $10,000 return for every $1,000 you spend on landscaping. It is amazing what rocks, trees, and shrubs can do to increase the perceived value of a property. A good rule of thumb is to budget 1% to 2% of the final expected sale price of your home for landscaping.
Roof: If the home needs a new roof, replace it.
HVAC: Make sure the home has a working heating and cooling system. In some areas, air conditioning is now mandatory.
Garage: Other than paint, do not spend much money here.
Back patio: This is an often overlooked but a very important area. A simple $1,500 deck with two chairs and a small table can make a big difference.
Make sure your general contractor has addressed each of these items in his quote. If you make these simple improvements, you will be able to sell your property for top dollar and maximize your profits.