Home improvement reality TV shows are incredibly popular. You’ve probably seen at least an episode or two, the kind where a few people come in and—poof!—within a couple weeks, a shack becomes a mansion. Reality TV makes fixing and flipping a home look easy and profitable, and while it is profitable, it’s not always easy – or cheap. In fact, in 2013, the average gross profit for a fix-and-flip was $58K, which is a nice chunk of change. The reality is that to fix and flip a house requires a lot more time, labor, and funding than “reality” television would have you think, but it doesn’t have to be a nightmare if you know what you’re doing.
Find a Home for Sale Priced Low Enough
The first thing to do when searching for a home to flip is to find that perfect balance between a property’s sale price and the current market value. You want to find a home priced on the low end that doesn’t require too much renovation, or a home that only needs easy remodeling. On TV, you don’t usually see the process of comparing records, sifting through paperwork, and crunching numbers. That rarely makes for good television. But it is just as important to your financial success as being able to wield a hammer.
Imagine you are looking for a home in which to invest. You search the county records and find several homes in short sale or foreclosure. Most of these homes are well kept; it’s just that the owners cannot continue making the mortgage payments. Oftentimes, investors can snatch up these properties at reasonable prices, and many of them generally require minimal work. This keeps your overall renovation costs manageable once you invest in the real estate.
Use Reliable, Yet Cheap Contractors
One fix-and-flip reality TV show features a team of brothers, one a real estate agent, one a contractor, ready to turn anything into a dream home. Chances are, however, that you aren’t a contractor and you aren’t going to be doing the work yourself – and even if you are, you probably won’t have expertise in every area that might need work, from painting to plumbing to HVAC. As an investor, you’re knowledgeable, but you probably don’t have the construction experience to understand everything that needs to be remediated. This is why you need to find a reliable contractor or team of contractors to work with regularly, and they need to be affordable—this is key! Your renovations should never cut into your profits substantially. If this happens, your fix-and-flip investment is not going to return the profits you desire, so do your research and find out which construction companies in your area are properly licensed, bonded, reliable, and affordable.
Finance the Deal
You’ve found the perfect foreclosed home scheduled for auction; you have the contractor to do the fixes: now get the money. Many of the reality TV shows don’t go into financing because that’s not sexy, but the bottom line is unless you have the hard cash on hand, you’ll need financing to purchase the home. Most of us don’t have network executives backing our residential rehab efforts in the name of scoring Nielsen ratings, so we instead look for a reputable lender. Specifically, you want someone who specializes in fix-and-flip financing, who understands the real estate market, and who knows how to evaluate both property and projects so that you get the financing you need. The people at Socotra Capital are experts in fix-and-flip financing, and we can look at your overall plan, including the property you want to purchase, and design the perfect financing to get you the real estate investment that will ultimately pay off for you.
We love reality TV fix-and-flip shows. Some of the things these contractors do to these properties are truly breathtaking. There is a fine line between losing money on the deal and earning a profit, however. This is why you should sit down with an experienced lender that understands the real fix-and-flip process. We are Socotra Capital, and we are that lender. Contact us today to discuss your fix-and-flip opportunity and let us fund your dreams into reality.