The fair market value of the property after fixing up
Assuming the market condition remains the same, what would be the listing price when it’s ready? Find the recent sold properties and active listings in the area. Compare the subject property with them on size, number of bedrooms, lot size, garages and do proper adjustments accordingly.
Reminder: Zillow is a good start to find current listings and recent sales. Cyberhomes has neighborhood data by zip code.
The current condition of the property
Does it need a big haul over or just cosmetic fix ups? How much do you need to put in it? Walk through the house with an experienced contractor before you buy. Examine the house components such as heating, plumbing, electrical, foundation, floor plan, roof, windows, walls and floors, etc. Discuss with the contractor what needs to be done to bring the house up to market standard. The rule of thumb is: Allocating your budget to bring maximum profit. The walk through also helps the investor form a vision of the future state of the house and the flipping strategy. After the walk through, make sure you get an itemized bid from the contractor.
Reminder: As a new investor, you may want to start from cosmetic fixers.
Are you going to make the house a rental or a resale? First, profit calculation is different from rental to resale. Second, the exit strategy will decide how you remodel the house. Resales usually have higher remodel standards than rentals. Third, if you’re borrowing hard money, refinance in the exit strategy maybe needed to pay off the bridge loan.
Reminder: have the exit strategy before, not after purchase.
Beyond the basic fix ups, how much further to go? Should you use vinyl or hardwood for kitchen floor? Where does the decision come from? Again look at your neighborhood houses for the answer. If most of the houses in the community have hardwood floors, installing vinyl may cause a hard sell later. With a budget limit, you need to make decisions on where to allocate the money and how far to go.
Reminder: Detach the emotions and look at it as an investment house.
Before you buy, count in all the costs involved in the deal such as,
Acquisition costs: the price for purchasing the property
Rehab costs: fix up, permits, etc
Holding costs: Insurance, utilities, etc
Selling costs: Commissions, escrow, etc
Financial costs for borrowing money and refinance
Reminder: Budget certain percentage of the cost in case if things don’t go as expected.
Where does your money from? From your own saving pool, or a bridge loan, or other people’s money? If you’re borrowing money, what will be the monthly mortgage? How will you pay off?
Reminder: Don’t be scared away by the words hard money when the opportunity comes requiring quick cash. Explore the terms and see if you have an exit strategy to pay off. Work with a reliable hard money source such as Intrust Funding to fund your deal and increase Cash on Cash return.
A seasoned contractor is even more important for new investors as they bring rich experiences into the project. Where to find the trustable contractors? Actually it’s not that difficult once you know where to look. If you acquire a property from a wholesale company, like Invest Now, it will connect you with contractors they have worked with repeatedly. Another way is to join a local real estate investment organization. For Greater Seattle area, try Real Estate Association of Puget Sound (REAPS). There are contractors who are also real estate investors willing to help you. It’s a good idea to join such organizations anyway if you want to become a real estate investor.
Reminder: Thorough communications with the contractor is essential for the project success. Talk with them about your thoughts and listen to their ideas. And follow up to make your vision come true. At Invest Now, experienced investors help you to manage the project and facilitate communications with contractors.
New investors, not comfortable doing your first deal? No problem. Working with experienced investors at Invest Now will help you overcome the fear. You can get assistance from at each stage of the deal. These seasoned investors identify deep discounted properties; provide reliable contractors and facility the remodel project. When you’re ready to list the property, you can even get discounted listing commission!