All Forum Posts by: Raja Maan

How House Flippers Prepare To Sell Properties

House flippers have very time-oriented careers. Once a property is purchased, it is time to start renovations, and plotting time lines for individual projects to keep everything on schedule in order to sell the house as quickly as possible in a given area. However, just walking blindly into a project without figuring out what happens between purchasing and selling can leave flippers with a money pit on their hands. For these reasons, we have put together an overview of some of the key things house flippers need to do when preparing properties for sale.

Figure Out A Budget

House flippers need to have an overall budget, which is usually broken down into two small figures. The first is the price of purchasing, and the second the cost of renovation. It is important that house flippers do not go over those budgets in order to maximize profitability. Keep in mind, buying everything “on the cheap” also does not pay off. Potential buyers can tell poor quality in aesthetics, and skimping on the construction material only leads to more problems down the road.

House Flippers Should Get An Estimate

When all of the work is done, get the house appraised to see how much the value has improved. House flippers should compare this estimate to other homes in the immediate neighborhood in order to arrive at a reasonable (and profitable) price. Simply picking a number out of the air will not sell the house.

Filling In The Gaps In Financing

House flippers often run into immediate costs when undertaking a project. Whether it is getting permits, listing costs, renting furniture for staging, or anything else. In these cases, house flippers usually turn to bridge loans or hard money loans. Bridge loans are designed to fill in the gaps in funding which are not covered by larger financing (which is usually used for the major renovations and construction). Bridge loans are usually figured into the overall cost of the property, and flippers repay the financing when the home sells, or out of any larger loans used in the rehab phase.

Accounts Receivable Financing For Growing Businesses

For growth-focused businesses, securing capital to get to the next stage of development often means taking on extra debt. Unfortunately, traditional loans, and all they entail, can do more to hinder growth than to help it along. However, there are two alternatives to traditional loans that give businesses the capital they need from within, by focusing on accounts receivable.

Asset Based Lines Of Credit

Asset based financing is a revolving line of credit structured around property owned by a business. “Property” in this case means equipment, inventory, and accounts receivable. Unlike traditional loans, asset based lines of credit can be drawn from as needed, as opposed to taking one lump sum of money. As a business grows and accounts receivable rise, the asset based lines of credit can be reconfigured with higher spending limits. Asset based lines of credit are a great method for leveraging accounts receivable for long-term growth.

Invoice Factoring For Growth Capital

One of the major issues keeping small businesses from growing is the lag in staggered customer payments. Invoice factoring is a method of monetizing accounts receivable to give business owners immediate access to the revenue they are owed. Open customer invoices are submitted through factoring services, and are converted to capital within 24 hours. This is a debt-free solution which not only allows businesses to clear up a backlog of open invoices that have aging periods of 30 days or longer, but it also gives businesses the ability to submit invoices as they are generated. Invoice factoring removes the burden of tracking down payments from by providing a centralized source of revenue to streamline accounts receivable.

Getting Growth Capital From Within

Accounts receivable financing options are great for accruing growth capital without having to resort to assuming debt through traditional loans. Small businesses can leverage receivables to structure flexible financing solutions to ensure long-term growth and success. Biz Com Loans is committed to helping small and new business owners get the capital necessary to thrive in a very competitive marketplace. We can provide asset based lines of credit, invoice factoring, as well as other financing solutions structured around your business needs. If you would like to learn more about how we can help, contact our offices today. Our team will work with you directly to create a tailored plan to help you reach the next milestone.

Real estate can be hedge against market volatility when stocks take a tumble, and there are many perks associated with owning an investment property. Becoming a landlord is a smart way to generate a steady passive income stream, but it does take a certain amount of cash to get started. When you don't have a huge bankroll, taking out a loan may be the only way to seal the deal.

Investment property financing can take several forms, and there are specific criteria that borrowers need to be able to meet. Choosing the wrong kind of loan can impact the success of your investment, so it's vital to understand how the various alternatives work before approaching a lender.

Option #1: Conventional Bank Loans

If you already own a home that's your primary residence, you're probably familiar with conventional financing. A conventional mortgage conforms to guidelines set by Fannie Mae or Freddie Mac and unlike an FHA, VA or USDA loan, it's not backed by the federal government. With conventional financing, the typical expectation for a down payment is 20% of the home's purchase price but with an investment property, the lender may require a down payment closer to 30%. It may be possible to use gifted funds for a down payment, but gifts would need to be documented properly.

With a conventional loan, your personal credit score and credit history determine your ability to get approved and what kind of interest rate applies to the mortgage. Lenders also review income and assets and borrowers must be able to afford their existing mortgage if they have one and the monthly loan payments on an investment property. Future rental income isn't factored into the debt-to-income calculations, and most lenders expect borrowers to have at least six months' of cash set aside to cover both mortgage obligations. 

Option #2: Fix-and-Flip Loans

While being a landlord has its perks, it also comes with certain headaches. For some investors, flipping is the more attractive alternative because it allows them to receive their profits in a lump sum when the house is sold rather than waiting on a rent check each month. In that scenario, a fix-and-flip loan would more appropriate.

A fix-and-flip loan is a type of short-term loan that allows the borrower to complete their renovations so the home can be put back on the market as quickly as possible. Fix-and-flip loans are essentially hard money loans, which mean the loan is secured by the property. Hard money lenders specialize in these kinds of loans, but certain real estate crowdfunding platforms offer them as well.

The upside of using a hard money loan to finance a house flip is that it may be easier to qualify compared to a conventional loan. While lenders do still consider things like credit and income, the primary focus is on the property's profitability. The home's estimated after-repair value (ARV) is used to gauge whether you'll be able to repay the loan. It's also possible to get loan funding in a matter of days rather than waiting weeks or months for a conventional mortgage closing.

The biggest drawback of using a fix-and-flip loan is that it won't come cheap. Interest rates for this kind of loan can go as high as 18%, depending on the lender, and your timeframe for paying it back may be short. It's not uncommon for hard money loans to have terms lasting less than a year. Origination fees and closing costs may also be higher compared to conventional financing, which could chip away at returns.

Option #3: Tapping Home Equity

Drawing on your home equity, either through a home equity loan, HELOC or cash-out refinance, is a third way to secure an investment property for long-term rental or finance a flip. In most cases, it's possible to borrow up to 80% of the home's equity value to use towards the purchase of a second home.

Using equity to finance a real estate investment has its pros and cons, depending on the type of loan you choose. With a HELOC, for instance, you can borrow against the equity the same as you would with a credit card, and the monthly payments are often interest-only. The rate is usually variable;however, which means it can increase if the prime rate changes.

A cash-out refinance would come with a fixed-rate, but it may extend the life of your existing mortgage. A longer loan term could mean paying more in interest for the primary residence. That would have to be weighed against the anticipated returns an investment property would bring in. 

The Bottom Line

Investing in a rental property or tackling a house-flipping project are risky ventures, but they offer the potential for a big payoff. Finding the money to take advantage of an investment opportunity doesn't have to be an obstacle if you know where to look. As you're comparing different borrowing options, keep in mind what the short and long-term costs are and how that can affect the investment's bottom line.

House flipping has become the day trading of the first decades of the 2000s. But in the rush to make a profit, far too many would-be real estate moguls overlook the basics and end up failing. In this article we'll look at the five biggest mistakes investors make in this market and how to avoid them.

1. Not Enough Money

Dabbling in real estate is an expensive proposition. The first expense is the property acquisition cost. While low/no money down financing claims abound, finding these deals from a legitimate vendor is easier said than done. Also, if you're financing the acquisition, that means you're paying interest. Although the interest on borrowed money is tax deductible, it is not a 100% deduction. Every dollar spent on interest adds to the amount you will need to earn on the sale just to break even.

Paying cash eliminates the interest, but even then there are property holding costs, such as taxes and utilities. Renovation costs must also be factored in. If you plan to fix the house up and sell it for a profit, the sale price must exceed the combined cost of acquisition, the cost of holding the property and the cost of renovations. Even if you manage to overcome these hurdles, don't forget about capital gains taxes, which will chip away at your profit.

2. Not Enough Time

Renovating and flipping houses is a time-consuming business venture. It can take months to find and buy the right property. Once you own the house, you'll need to invest time to fix it up. Before you can sell it, you'll need to schedule inspections to make sure the property complies with applicable building codes. If it doesn't, you need to spend more time and money to bring it up to par. Next, you'll need to invest time to sell the property. If you show it to prospective buyers yourself, you'll spend plenty of time commuting to and from the property and meeting with potential buyers.

If you are able to make a 10% profit on a house that cost $50,000, you'll make a $5,000 profit. For many people it might make more sense to get a good job, where they can earn that kind of money in a few weeks or months via a steady paycheck – with no risk and a very consistent time commitment.

3. Not Enough Skills

Professional builders and skilled professionals, such as carpenters and plumbers, often flip houses as a sideline to their regular jobs. They have the knowledge, skills and experience to find and fix a house. Some of them also have union jobs that provide unemployment checks all winter long while they work on their side projects.

The real money in house flipping comes from sweat equity. If you're handy with a hammer, enjoy laying carpet, can hang drywall, roof a house and install a kitchen sink, you've got the skills to flip a house. On the other hand, if you've got to pay a professional to do all of this work, the odds of making a profit on your investment will be dramatically reduced.

4. Not Enough Knowledge

To be successful, you need to be able to pick the right property, in the right location, at the right price. In a neighborhood of $100,000 homes, do you really expect to buy at $60,000 and sell at $200,000? The market is far too efficient for that to occur on a frequent basis.

Even if you get the deal of a lifetime, you need to know which renovations to make and which to skip. You also need to understand the applicable tax laws and know when to cut your losses and get out before your project becomes a money pit.

5. Not Enough Patience

Professionals take their time and wait for the right property. Novices rush out and hire the first contractor that makes a bid to address work they can't do themselves. Professionals either do the work themselves, or rely on a network of pre-arranged, reliable contractors.

Novices hire a realtor to help sell the house. Professionals rely on "for sale by owner" efforts to minimize their costs and maximize profits. Novices expect to rush through the process, slap on a coat of paint and earn a fortune. Professionals understand that buying and selling houses takes time and that the profit margins are sometimes slim.

The Bottom Line

Before you get involved in flipping houses, do your research. Like any other business venture, flipping requires time, money, patience, skill, and it will definitely wind up being more difficult than you imagined.

House flipping has become the day trading of the first decades of the 2000s. But in the rush to make a profit, far too many would-be real estate moguls overlook the basics and end up failing. In this article we'll look at the five biggest mistakes investors make in this market and how to avoid them.

1. Not Enough Money

Dabbling in real estate is an expensive proposition. The first expense is the property acquisition cost. While low/no money down financing claims abound, finding these deals from a legitimate vendor is easier said than done. Also, if you're financing the acquisition, that means you're paying interest. Although the interest on borrowed money is tax deductible, it is not a 100% deduction. Every dollar spent on interest adds to the amount you will need to earn on the sale just to break even.

Paying cash eliminates the interest, but even then there are property holding costs, such as taxes and utilities. Renovation costs must also be factored in. If you plan to fix the house up and sell it for a profit, the sale price must exceed the combined cost of acquisition, the cost of holding the property and the cost of renovations. Even if you manage to overcome these hurdles, don't forget about capital gains taxes, which will chip away at your profit.

2. Not Enough Time

Renovating and flipping houses is a time-consuming business venture. It can take months to find and buy the right property. Once you own the house, you'll need to invest time to fix it up. Before you can sell it, you'll need to schedule inspections to make sure the property complies with applicable building codes. If it doesn't, you need to spend more time and money to bring it up to par. Next, you'll need to invest time to sell the property. If you show it to prospective buyers yourself, you'll spend plenty of time commuting to and from the property and meeting with potential buyers.

If you are able to make a 10% profit on a house that cost $50,000, you'll make a $5,000 profit. For many people it might make more sense to get a good job, where they can earn that kind of money in a few weeks or months via a steady paycheck – with no risk and a very consistent time commitment.

3. Not Enough Skills

Professional builders and skilled professionals, such as carpenters and plumbers, often flip houses as a sideline to their regular jobs. They have the knowledge, skills and experience to find and fix a house. Some of them also have union jobs that provide unemployment checks all winter long while they work on their side projects.

The real money in house flipping comes from sweat equity. If you're handy with a hammer, enjoy laying carpet, can hang drywall, roof a house and install a kitchen sink, you've got the skills to flip a house. On the other hand, if you've got to pay a professional to do all of this work, the odds of making a profit on your investment will be dramatically reduced.

4. Not Enough Knowledge

To be successful, you need to be able to pick the right property, in the right location, at the right price. In a neighborhood of $100,000 homes, do you really expect to buy at $60,000 and sell at $200,000? The market is far too efficient for that to occur on a frequent basis.

Even if you get the deal of a lifetime, you need to know which renovations to make and which to skip. You also need to understand the applicable tax laws and know when to cut your losses and get out before your project becomes a money pit.

5. Not Enough Patience

Professionals take their time and wait for the right property. Novices rush out and hire the first contractor that makes a bid to address work they can't do themselves. Professionals either do the work themselves, or rely on a network of pre-arranged, reliable contractors.

Novices hire a realtor to help sell the house. Professionals rely on "for sale by owner" efforts to minimize their costs and maximize profits. Novices expect to rush through the process, slap on a coat of paint and earn a fortune. Professionals understand that buying and selling houses takes time and that the profit margins are sometimes slim.

The Bottom Line

Before you get involved in flipping houses, do your research. Like any other business venture, flipping requires time, money, patience, skill, and it will definitely wind up being more difficult than you imagined.