Find It
With inventory as slim as it has been the last 6 months, it’s important to have as many sources for finding properties as possible. The cheapest route would be to find an aggressive Realtor that will jump on MLS listings the minute they hit the market. It’s a huge plus, but not required, if your Realtor has experience with flipping houses. Alternatively, you can go to a property wholesaler. I recommend Networth Realty (http://networthrealtyusa.com/). The great thing about working with Networth is they have a network of trusted contractors and an inventory of fairly priced houses that they have acquired through multiple avenues including the MLS. This is a MUCH safer route than buying from auctions. County auctions can be very risky and I wouldn’t recommend them to anyone that is new to flipping. Aside from the risk, the auctions in DFW are saturated with cash investors these days and are far too competitive. Remember this, the largest determining factor of how much you will make on your next flip is the purchase price. Be patient, and never offer more than you have to just because you’re eager to flip a house.
Fund It
This is typically the part of the process that stops most people from being able to flip houses. Conventional and conforming loans will not cover houses that need structural repairs (i.e. roof and foundation issues), which means you need to seek out less conventional (pun intended) means of financing. Luckily there are many routes you can take. 1. You can partner with someone that believes in you and will front the cash; split varies based on your level of experience. 2. Work with a less conventional mortgage company like SunWest Mortgage (http://www.swmc.com/swmc/) who will lend you the cash for the house as well as the remodel. All you have to come up with is 20% of the total cost of the project. If you can save enough cash, this would be the way I would go. 3. Hard money lenders! These are people that will offer you interest-only loans with no credit or proof of income. They ask for 4 points (4%) upfront for the total cost of the project and then charge you around 14% APR. Example: House $150k, repairs and updates $50k, total is $200k. 4% upfront would be $8000 and then your monthly payments would be $2,333 ($200k X 14% /12). Downside is that none of this money you’re fronting is ever coming back to you. I used to speak poorly of hard money for this very reason, but recently I had a change of heart because it opens up flipping opportunities to people that would be turned down by every other means of getting capital. Just make sure you’re working with a hard money lender than is reputable. A great hard money lender in Dallas is DHLC Mortgage (http://www.dhlc.net/).
Fix It
If you’re not handy and you don’t already have a great list of contractors that are reliable and inexpensive, don’t worry! There are plenty of crews out there that will even manage the project for you. One such company is Total Property Solutions in Addison, TX (214-295-8924). The only thing you will have to do is pick out the building materials (floor, backsplash, carpet, paint, etc.). On high-end homes I would suggest getting counsel from a designer and possibly an architect if you really want to maximize your property’s potential. In order to get top dollar in todays market, you will need to make sure ALL your repairs and updates are done with the utmost quality. If the buyer misses something, the inspector won’t, and you will end up discounting the house prior to sale. If you’re not familiar with how much you should spend on repairing and updating, watch a house flipping show. My favorite is Flip or Flop. They handle some pretty extreme situations and will open up your imagination.
Flip It (or Future)
Now you have a choice to either flip it or lease it. You should have this in mind from the beginning of the project because not every neighborhood has high rental rates nor is every neighborhood good for flipping. Most neighborhoods are good for one or the other. Make sure you hire a great Realtor to list your property to ensure you get the most accurate list price and the best marketing possible. It makes sense to be working with a competent Realtor you trust from the very beginning for a couple reasons: 1. So you don’t overpay for the property and 2. a Realtor will be able to give you an idea of how much you could sell the property for prior to purchasing.
For people out there that are completely new to flipping, watch a couple shows, read some more blogs, and start looking for either a Realtor to team up with (like myself) or someone else that you trust and already has a couple flips under their belt. Reason being, there are many places you can make mistakes along the way, and every mistake eats at your bottom line. Good luck flippers!