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Step 2. Set a Budget for Renovation
An estimate of how much it will cost to rehab the home is a key piece of information you’ll need as you calculate the details of your project. First-time flippers are likely to fall into the trap of under-budgeting for renovation, which can reduce potential profits.
Tip: Build good relationships with suppliers and contractors so you can get accurate price estimates and on-budget execution.
Step 3. Get Pre-approved for a Loan
Pre-approval is key so you can close quickly once you find the right property to flip. You’ll be provided with an interest rate in this step, which will help you ensure your deal is staying on-budget. Approach a lender like Revolution Realty Capital to get pre-approved before you start looking at houses.
Tip: Get pre-approved as early as possible – it’s easy, free, and will give you information about how much you can afford to spend.
Step 4. Purchase and Renovate
Once you’re pre-approved by your chosen lender, you’re free to purchase and flip the house. If you’re wondering how to flip houses with no cash reserves, a private money loan is the answer: You may not have to pay anything out-of-pocket throughout the process.
Tip: Keep looking at alternate lenders’ offerings as you go so you’ll know the best option for your next project.
Pros and Cons of Flipping Houses
Flipping houses may seem like an assured and exciting way of making money, but the reality is not so simple. There are both pros and cons to flipping property. Here are a few of each:
Fix and Flip Pro
Quick profit potential
Fix and Flip Con
High financial risk
Fix and Flip Pro
Develop buyer insights
Fix and Flip Con
High holding costs
Fix and Flip Pro
Potential to scale
Fix and Flip Con
Requires time and effort
House Flipping ROI
To calculate your return on investment (ROI) for a flip, divide the amount of net profit you make on the project by the amount you’ve put into the investment property. Include all elements including loan carrying costs and closing costs, taxes, and renovation costs.
ROI = net profit on resale ÷ amount invested in the property
Fix and Flip Loans Frequently Asked Questions
Those looking at how to get a loan to flip a house often ask the same types of questions. Here are a few you might be wondering about.
How Does Fix and Flip Financing Work?
Fix and flip loans provide a loan amount that covers the purchase price and the cost of renovation for an investment property.
Is Fix and Flip Easy?
Fix and flip is much more difficult than popular depictions make it seem. Beginners are apt to make mistakes, and even pros take on substantial financial risk in the process.
Do Banks Fund Fix and Flips?
Banks do not tend to provide loan programs geared toward fix and flip financing. Conventional mortgages or business loans may be applied as well, but aren’t the best options.
Can You Flip a House With a Conventional Loan?
Purchasing a house with a conventional mortgage is an option for those not interested in private money loans, but you need cash reserves or other assets to serve as collateral for such a loan.
Can I Deduct My Own Labor When Flipping a House?
No. Personal labor cannot be applied to the cost basis of a house you are flipping.
Fix and Flip Loans Are a Flippers Best Friend
Those interested in flipping a house will be wise to look closely at fix and flip loans to finance their project. Now you know what fix and flip loans are, you’ll be ready to assess whether this option is right for you.
At Revolution Realty Capital, we specialize in helping real estate investors get the right financing for long-term success.
