Top 10 things "flippers" should do

Property investment for resale has been glorified in shows like "Flip that House", in the ultimate sellers market a few years ago people with very little experience were making big bucks doing this.

Things have changed a little since the days when you could buy a house, throw some paint on it and sell it for a big profit. The good news is that with all the bank owned properties and short sales on the market, good deals are everywhere. Now the investor is taking advantage of the market form the buying end of the transaction rather than the selling end.

Here are 10 tips for the new property investor or even the seasoned investor to consider:

10) Get bids on the work you will need to do. Even if you have done this sort of thing for a long time, it is always a good idea to talk to your subs before you make an offer rather than after you have purchased the property. Costs are rising in all areas and a job that might have cost one price a year ago may have a completely different price tag today.

9) Figure out your acquisition money. If you will need to obtain financing for the purchase of the property or any part of the repairs it is good to know what types of financing are available before you get to involved in the project. Typically, the mortgage requirements are much stricter for investment properties. Better credit and higher down payments are normally required. Closing costs may also be higher and all of these considerations affect your total capital out lay. The good news is that there are loans for investors that will allow you to finance a portion of your construction costs and this can be a big help with the cash flow of the project.

8) Talk to a Home Staging Consultant. Selling vacant properties is a challenge. A good Home Staging Consultant will have some ideas for how to stage the home so it seems welcoming and appealing. This can definitely give your property a marketing edge and it is a good idea to budget for it.

7) Have a "heart to heart" with your Realtor. The worst mistake many investors make is doing the wrong improvements. Your Realtor can help guide you make choices for improvements that will increase the value of your property without over improving it. The other thing you need to carefully consider with your Realtor is the marketing time after you finish the project. What can you realistically list the property for, what marketing time can you expect at different price points and what will your carrying costs be during that time.

6) Have a contingency reserve. Something will go wrong. It always does. Plan for it by having a percentage of your overall budget set aside for when it does.

5) Find out what type of financing your property qualifies for. Your property may be located in an area that has special financing available for buyers. Many urban areas have community development loans that help buyers purchase homes in those neighborhoods. Rural areas may qualify for USDA 100% financing. If your property is in an area that has special financing available use that information to help market your project.

4) Get an appraisal. This may seem like a needless expense since your Realtor is advising you on market value but it can give you and your potential buyers additional peace of mind. There is also another reason and this has to do with #5 and # 3 so pay attention.

3) Make sure the improvements meet FHA requirements and bring the property up to FHA standards. Not every property qualifies for FHA, multi family homes or homes at the higher end of the price scale may not qualify (please talk to your mortgage professional about this) but a large number of buyers in the current market are using FHA insured funds. Your property will stand a much better chance of finding a qualified borrower if it meets these standards. A certified FHA appraiser will be your best source for this.

2) Keep all your recipts. There are a number of reasons to do this. Of course you want to keep track of exactly how much you have put into the project for your own records but increasingly, mortgage lenders for the buyers want to know as well. If you keep these organized and in one place, if the buyers lender want to see them it will be painless to get them copies. This is even more important if you have more than one project going on.

1) TAKE PICTURES! They say a picture is worth a thousand words and when it comes to modern day underwriting this is proving to be true. Pictures taken before you start can often help tremendously in explaining increases in value. Typical underwriting says that the value of a property is only what the most recent purchase price plus the actual cost of improvements total if the property has been owned by it;s current owner less than 12-24 months. You can have all the augments you want about sales price vs. value but a picture of a trash filled, dirty, damaged property will go a long way to helping you win that argument.

If you have any questions about financing for investment properties please feel free to contact me any time.