Prepping the Flip

EquityBuild Real Estate Investing NewsThe math involved with flipping real estate is actually remarkably straightforward; buy low and sell high. No rocket science there. But successful flippers know that it’s much more than that.

Not only is the acquisition cost an essential ingredient as well as what the property might sell for, but the expenses involved in preparing the property for sale are just as important. And not just as a way to calculate your bottom line but to widen the pool of potential buyers. When evaluating a potential flip, an on-site inspection is performed to determine what might be fixed and what must be fixed. And those two considerations are deeply critical.

Might Be

Repairs and remodels that fit into this category are primarily aesthetic in nature. Typical changes to a property can include new flooring throughout the property and a fresh coat of paint. These alterations make the property more appealing and help support a higher sales price compared to a home that appears run-down and needs more than just a little TLC.

You may want to invest in popular upgrades such as a new kitchen and cabinets or finishing out a master bath with sparkling new hardware. Mud room? Sure, why not? What about the garage, those new epoxy floors look exceptionally nice, don’t they?

As each upgrade is made, your profit shrinks. There is indeed a delicate line when calculating what repairs will inflate the sales price and which ones will affect your bottom line. Yet these considerations are optional, and you can choose a simple coat of exterior paint or a complete interior remodel. They’re a choice.

Must Be

Unless you’ve already lined up a buyer for your flip, you need to present the property to the widest pool of buyers as possible. This is initially accomplished by listing the home in the Multiple Listing Service, where buyers and real estate agents from across the country can view your project.

Next, and just as valuable, the property needs to conform to current lending standards.

EquityBuild - Finding Your Real Estate Investing Niche, Property FlipWhen evaluating a potential flip, it’s critical the property meets lending guidelines established by mortgage giants Fannie Mae and Freddie Mac as well as government-backed loans underwritten to VA and FHA standards. Most buyers today need a home loan in order to buy a property, and if your property isn’t in good enough condition for a lender, you’re severely depleting your potential pool of buyers. It’s not essential to pore through lending guidelines to make certain your property is acceptable, but you do need to remember the term, Deferred Maintenance.

If Deferred Maintenance is noted in an appraisal, a lender will require the deferred items be repaired before a mortgage can be placed. Regardless if, the buyers have 30 percent down and credit scores in the stratosphere, deferred maintenance will kill a deal. Deferred maintenance can be items such as a foundation that needs repair, water marks on the ceiling or moisture in the basement or a faulty roof.

When deciding which repairs are needed for your next flip, the most notable are the ones that can stop a home loan dead in its tracks. You may not have to paint the walls or shampoo the carpet, but you do need to make sure the property will pass a lender’s muster.

by, Sydny Cohen: EquityBuild News Editor