House flipping has become more than just a passing trend all over the U.S. People have learned that finding less than desirable houses and fixing them up can be both profitable and extremely rewarding. It’s just a matter of knowing what you’re doing and having an actionable plan.
The Indiana housing market took a pretty good hit during the recession. Fortunately, this cleared the way for the house flipping industry to really take off. There are plenty of small IN towns with homes that have been put up for auction or that have fallen into disrepair. Larger cities have just as many prospects, but it can be trickier to find houses in good neighborhoods that will be desirable to eligible buyers.
The more populated the area, the more you’ll need to research the demographics and the type of renovations necessary. A lot of IN towns and rural communities have a much lower cost of living than in other areas of the U.S. A 3-bedroom home can be purchased for less than $100,000 in many areas, and this means keeping the cost of construction to a minimum.
While this is great for the people purchasing the home, it can also make planning the house flip more difficult. The budget might be tighter, and you’ll need to be smarter.
Understand What You’re Getting Yourself In to
Not every renovated home is going to sell immediately. Understanding that you may be sitting on a property for quite some time is important when totaling up your investment. It’s also imperative that you don’t underestimate the amount necessary to complete the renovations. Eyeballing a house is a far cry from having it inspected and evaluated by a professional. Your idea of a $10,000 fix could be a professional’s idea of one that costs three times that much.
When choosing a property, look at the local demographics, how much comparable houses sell for and what the market looks like. Consider the trends in the last 5-years to choose the best time to put the property on the market.
Flipping a house means that you need to be a designer, amateur contractor and marketing professional all rolled into one efficient person.
Choose a Property
Chances are, there will be hundreds of properties that you look at before making any decisions. This is good. Consider all of your options and settle on a property that will require a minimum investment at a maximum return.
Before you sign anything, though, have an independent and qualified inspector come in and give you an idea of what needs to be done before it can be sold. It’s also a good idea to look at things like property taxes and the history of the home. You may end up financially responsible for more than you realize.
Secure Funding
The idea behind house flipping is to find, renovate and sell properties as quickly as possible to obtain a positive return on your investment. Waiting for a conventional home loan isn’t always prudent or possible. It can also lock you into terms that you aren’t comfortable with or that don’t work with a fast turnaround time. This is where hard money lenders in Indiana can make a huge difference.
Hard money lenders allow you to bypass a lot of the traditional red tape that usually accompanies real estate purchases. Their terms are more forgiving, you’re able to get financing fast, and you don’t have restrictions on how quickly you can sell the property after the purchase.
It’s important to know exactly what the terms of hard money financing are, though. For the most part, you’ll be expected to pay hard money lenders back fairly quickly and the interest rate is usually much higher than a traditional home loan. These types of loans are a good option for house flipping if you’ve done your homework, are prepared to make the renovations and sell pretty quickly.
Decide What Repairs and Renovations are Necessary
After purchasing the property, you’ll need to come up with a plan for the renovations, including a list of everything that needs to be done. This involves a professional inspection that’s thorough enough to catch any outstanding problems. It’s important to prioritize these issues, addressing the ones that could interfere with legal safety standards first.
Decide whether you’d like to sell the property in a “ready to live in” condition, or something close to a blank slate for the buyer to decorate themselves. Most house flippers have better luck with a fully refinished home, so you’ll need to also plan for cosmetic fixes.
After the required renovations are complete, it’s time to put the job up for bid to local contractors. Always take more than one estimate to make sure that you’re getting the best possible deal. Just don’t cut corners, as this can lead to serious legal trouble.
Paperwork, Paperwork, and More Paperwork
When you’ve found your contractor, it’s time to draw up the contracts. This means creating agreements that encompass the work that needs to be done, materials, expenses and even the professionals sub-contracted for certain jobs. The contract should include provisions for every possible circumstance. It helps to have an attorney look over everything to make sure that it’s all in order.
Oversee the Construction Process
Don’t hire a contractor and just walk away! Stay on top of the construction process and try to participate as much as possible. This keeps you in control of the renovations and helps you better understand what’s been done.
Final Inspections
When the renovations are complete, have the home inspected again to make sure that all of the issues were addressed. Make sure to save a copy of this inspection to present to prospective buyers.
The last step is to stage an open house and start taking offers on the property. With the proper planning and resources, house flipping can be a great way to make money and improve the Indiana housing market!