What to Look for in a Property to Renovate or Flip
There’s a perception that it’s easy to make money “flipping” properties.
That can be true, but there are certain conditions to having success when you get involved in a real estate investment.
In this article, I am referring to those who invest in a property with one of two intentions:
- fix it up and sell it, commonly known as flipping
- BRRR, or buy, renovate, rent, refinance
The end goal – profit for the real estate investor. The first step is what to look for in a property, as they aren’t all created equal.
Here are 3 key things to look for when considering a property to renovate or flip:
In real estate, the old saying goes: location, location, location. But if you’re flipping houses, it can be a bit more complex.
For instance, the best value in a home to renovate may not be in the high-end or most desired neighbourhoods in the city. For starters, your purchase price will be high. The cost of finishing a house in a high-end location could also be more expensive, since prospective buyers will be looking for top-of-the-line flooring, appliances, and more.
Location is still important, however, when it comes to the purchase price you’ll pay and the resale price. You want to be sure buyers or renters want to live in that neighbourhood. Get a good idea of who your target buyer is. If you’re planning to BRRR, you need to be sure the area, or condo board if buying individual units, allows rentals.
Here are some key location considerations in choosing a property:
- Is the location close to shopping, dining, and green spaces?
- Is it in good proximity to major highways/intersections?
- Is it close to schools?
- Is it accessible to downtown or other work centres, or at least close to transit options?
Typically, the best value for flips is in the low to medium-low end of the market, those around or below the average home price for the city.
2. Places Others Don’t Want
It may sound counter-intuitive, but you need to find the properties that aren’t the most attractive, and that home buyers likely don’t want. As an investor, you need to have a different “eye” for property than the typical home purchaser.
The house that is outdated isn’t a big seller for a family who wants a turnkey home. The property that’s full of junk, or a house that is full of unwanted “stuff” also don’t sell as well as staged properties.
Look to solve a problem for the seller, and you’ll create a “win-win” for both of you.
For instance, an adult child inherits the family home in another city, only to be burdened by the amount of “treasures” left behind by parents who were hoarders. Solve the problem by offering to get rid of the junk inside when you buy the house. In return, you can bid low and get the property quicker than if they take the time to empty it or renovate it themselves.
The same is true of houses with decades of old decor, floor plans that aren’t modern, or old carpet and flooring – or all of the above.
The average buyer shudders when they look at the work ahead in properties like these. Realtors may find such a house difficult to move. As a real estate investor, this is your jackpot! As long as the structure is good and you have a vision for how it could look once renovated, that lower price and fast closing process is good news for you.
After all, that shag carpet may have original hardwood underneath. That old paneled basement may have a solid foundation and walls behind the paneling. And in the end, the seller will be happy to have somebody who actually wants the property, even at a low price that works for you.
3. A Sound Business Plan
When you’re examining a property that you intend to renovate and flip, you need to make sure you have a sound plan for making money on the deal.
Here are some key questions:
- What’s the sale price of the home and how much are you willing to spend?
- How much will renovations cost (including cleaning out the property and then renovating)?
- How long will renovations take?
- How much will you need to borrow to complete the renovations?
- Can you get a loan for the renovations, preferably one that allows you to place a minimum down payment?
- What is the ARV or after repair value of the property?
- In the case of the BRRR, how soon can the property be ready for a refinance?
That’s where an alternative lender like Calvert Home Mortgage Investment Corporation can support your business. We work with real estate investors all the time and can examine your business plan with the goal of making your investment successful.
Here are the ways Calvert Home Mortgage can help with every step, from purchase to flip to refinance:
We’ll review your business plan: If your plan is lacking, we won’t just loan you money. We will talk to you about any gaps since your profitability is closely tied to our profitability.
We accept a low minimum down payment: This allows you to have the funds to buy a flip, and then be able to put money toward renovations and cover your carrying costs.
We are your alternative to traditional lenders and credit unions: Traditional lending institutions are hesitant to fund flips, since they make money on longer term mortgages and they are hesitant to lend money to buy properties in poor condition. Our business is short term lending, and we have flexible terms that are right for your investment plan.
We work quickly: We can make decisions quickly and we have the money available to get your funding fast. That means you won’t lose out on that property that’s ideal for your investment goals.
We support the entire BRRR process: With our renovation financing, you can get the work done quickly, and then we can help with resources for refinancing once the renovations are done.
The Bottom Line
Those TV shows that promise you will learn how to flip houses in a 30-minute episode make it look so easy. While it’s not as easy as it looks, it can be done successfully! Every real estate investor started somewhere and continues to learn lessons from every house flip.
By tapping into resources that can support your business, a flip or BRRR can be successful. You can build a real estate investment business and enjoy doing it.
An alternative lender like Calvert Home Mortgage can help. As an associate to your business, we want your business to be prosperous. Call us when you’re ready for financing for your flip or renovation project.