Two Foundations of Successful House Flippers in California
I specialize in hard money financing here in California. California hard money rehab loans are one product type we offer that is in demand these days. With all of the house flipping shows on television, the seminars to help new investors get started and the increase in distressed properties available on the market, a sort of perfect storm has been brewing, bringing more and more people into the house flipping business.
While there is a place for house flipping as a business, there are some pitfalls that you must be aware of. As someone who finances rehab projects in California, I see a lot of different deals. I have seen people succeed and have seen people fail. Today we are going to look at two secrets of successful house flippers. I say secrets, but really these are two foundations for a successful and profitable transaction. If these two main points are covered and accurate, however, you should be able to set yourself up for a successful flip.
The first thing you need to be able to do as a successful flipper is to accurately assess the after repair value (or ARV) of a property. This is the price that your property is going to sell for when you are done with the rehab. All of your calculations are going to depend on this value, so it needs to be accurate. It is important to draw on the experience of your realtor – ask them to put together a CMA on the property for you with comps. Don’t stop there, however. You need to verify and do your own leg work on this part of the transaction. Look at the comps, days on market, selling price, etc. Go drive the comps, get a good feel for the neighborhoods and pay attention to differences in price between properties. You need to have an accurate number for your sales price.
The next thing you need to deal with is the cost of rehab. Over estimated after repair value’s and under estimated rehab cost estimates are the two biggest pitfalls that I see. Be sure you have an accurate estimate for the work to be done. Getting multiple bids or estimates is one way to help ensure this. Getting inspections done is another way to help avoid unseen and potential costly rehab costs. Finally, having a quality contractor working for you is essential. You want the work done right the first time, and you want it done on budget.
If you have an accurate after repair value number and an accurate cost of rehab, you have the information needed to evaluate your transaction. From that point forward it is a matter of plugging in the numbers, doing your calculations and ensuring you have a nice profit margin. You can use our hard money rehab calculator to help with this – it will help you figure in the cost of the hard money loan, gap funding if you are using gap financing, selling costs and more – and it will spit out a ‘potential profit’ number for you.
There is a lot more to successful house flipping, and this is just a brief look at two issues I see all the time. For a great read, check out Yahoo’s article on Secrets of Successful House Flipping. As always, if you have a transaction here in California that you would like to discuss, please feel free to call me at 877 462 3422!