Jarhett Groff - Investor Loan Source

Money Maker or Money Pit?

Red Flags to Look for Before Buying Your Next Fix and Flip Property

For fix and flip real estate investors, there’s nothing better than finding that perfect “diamond in the rough” property. It’s like a dream come true. It’s in the perfect location at the right price, but is what we like to call “an ugly duckling.” It has an overgrown lawn, outdated light fixtures, horrible paint colors and lots of small cosmetic items that scare off most buyers. It is by far the ugliest home on the block. With a fresh coat of paint, a little bit of work and some new light fixtures this house could generate some big profits. It may be tempting to make your move right away, but before you do, be sure to do your due diligence. Look for these red flags that could turn your next real estate investment flip into a big flop.

1. Too Long On The Market

If the home has been sitting for too many months (or even years) on MLS, this could be a sign that something is wrong with the property. Be especially cautious if it is showing pending sales that fell through. This could indicate that previous homebuyers or real estate investors noticed serious problems with the home during inspections.

2. Foundation Problems

Major foundation issues can scare off potential buyers and cost thousands of dollars to repair. Look for cracks in the bricks, walls, flooring, foundation, sidewalk and driveway, as they could indicate some foundation problems. Uneven floors are also tale-tell signs that the home might require foundation repair.

3. Sewage and Draining Issues

Sewage and drainage problems can quickly turn into a bad situation for flippers. Drive by the house after a rain before buying the home. If you see puddles of standing water, the yard may have a drainage issue. Puddles near the foundation are especially concerning. Standing water in the yard and heaved walkways may also be signs of a blockage or break in the underground sewer line.

4. Roof Damage

Replacing a roof is expensive. A new roof can cost anywhere between $6,000 to $20,000 or more depending on the size of the roof and type of roofing materials. It pays to check out the roof carefully. Shingles that curl up at the corners, missing shingles, cracked shingles and exposed nail heads are all signs that the roof may need to be replaced.

5. Mold

Moisture leads to mold, which is the bane of every homeowner and real estate investor. Not only can it cause health issues and respiratory problems, but It can be costly to remove. Some mold growth is obvious, but it can also be lurking out of site and be more difficult to detect. When checking for mold in the home, look for water stains on the ceiling, walls and floors – including in the attic and basement. Dark, fuzzy stains and musty smells can indicate there might be a mold problem in the home and should not be ignored when inspecting the home and estimating repair costs. There’s a chance of it returning if the initial work wasn’t done right. Mold elimination should also include fixing the water source.

For many real estate investors, flipping homes can be an enjoyable experience. It can also be very lucrative. Keep in mind that due diligence is one of the most important things to master when it comes to real estate investing. There are hidden costs you need to take into consideration when deciding if a home is a good investment. Some repair costs are manageable, while others may exceed your budget. The next time you are looking at investing in a fix and flip property, be aware of the red flags that can help you distinguish the money makers from the money pits.

Ready to purchase your next fix and flip property? Investor Loan Source, a private lender based out of Texas, is here to help. Visit ILS.cash to learn more or apply now to get started.

The Basics of House Flipping

Do you ever watch reality tv house flipping shows and dream about making a big profit in weeks?

Real estate investors that purchase homes in need of repairs and cosmetic work can earn huge returns in a relatively short period of time. It’s important to keep in mind that house flipping involves work and careful planning in order to be lucrative.

There are financial risks involved as well, but if you follow the key steps outlined in this article, flipping homes can be an excellent way to make money quickly.

What is House Flipping?
Flipping houses involves buying a property, renovating it and selling it for a profit. In order for a home to be considered a flip, it must be purchased with the intent of selling it in a short period of time.

Step 1: Know Your Market
Getting familiar with the real estate market in your area is critical to the success of your flip. It will help you recognize undervalued homes with profit potential and ensure you don’t overpay for a property. It will also help you determine the price you should be able to list the home when you sell it.

Step 2: Set a Budget
How much do you have to invest? How much money will you need to borrow? There are excellent private lenders out there willing to finance your next real estate deal. Do not assume not having enough cash resources will rule out a possible investment. Learn more about fix and flip loans here.

Make a list of repairs needed and get quotes from contractors while setting your budget plan to ensure you will be able to profit after selling the property.

Step 3: Line Up Your Financing
When you find an ideal property for flipping, you will need to be ready to act fast. Talk to lenders BEFORE you are ready to purchase the home to ensure you don’t miss out on opportunities. Investor Loan Source specializes in short-term fix and flip loans and are able to get you pre-approved quickly. Having your financing available before you discover your dream fix and flip property will help you beat out other investors looking in your market at investment properties. If you are already considering purchasing a real estate investment property, consider getting pre-approved today.

Step 4: Establish Your Team
You need to start building relationships with contractors before you buy your first flip. Begin asking for quotes and estimates immediately after purchasing your property, or even better before.

Part of learning how to flip a house is building a strong network of contractors you trust and can depend on – general contractors, electricians, roofers, plumbers, painters, HVAC experts. Get to know several lower-cost, well-rounded handymen as well.

Unless you plan on doing the work yourself, your team of contractors are essential to the success of your flipping business. It is helpful to ask for references and to contact them ahead of time to ensure you are hiring a trustworthy contractor.

Step 5: Locate and Identify Your Property
Learning how to find good deals is critical. That means not only buying below market value, but with wide enough margins to cover your expenses.

There are many strategies to find below-market deals on homes to flip. You could work with a realtor to find on-market deals, work with wholesalers to find off-market deals, build a direct mail marketing campaign and so on.

Part of finding a good deal as a home flipper is patience. It may be tempting to act quickly on a property that is not ideal, but if the numbers don’t work or if the repairs involve more work, time and money than what you are comfortable with, it is best to keep looking. Be ready to act quickly on properties that are ideal, but be ready to walk away from properties that simply aren’t good deals.

Step 6: Buy the Property
Got a contract accepted? Wonderful! Now consider hiring a home inspector. The home inspector will help you ensure the property is structurally sound and that the mechanical systems are in good working order. You don’t want any expensive, unpleasant surprises.

Contact your team of contractors for quotes. Choose a contractor and schedule them to start work on the same day you settle on the property if at all possible.

Step 7: Renovate
Get to work! Time is money, so the faster you can complete the renovation project, the faster you can sell the property and pay off your loan.

Step 8: Sell It!
The final step of flipping homes is usually the simplest – selling it! You can usually lean on a realtor, but ultimately, you’re the one responsible for pricing properly; your profits depend on it. Make sure you understand the fundamentals of real estate pricing, before buying your first investment property to flip.

Once you sell the property, you can celebrate and enjoy the financial rewards of being a successful house flipper!

How to Add Curb Appeal

You only get one chance to make a first impression. Having good curb appeal is one of the most important factors in attracting buyers to sell your fix and flip homes quickly. If your curb appeal is lacking, the right buyers may never even set foot in your home.

Walk around your home and look for any neglected areas that might seem like “red flags” to buyers, such as missing roof shingles or rotted siding. Trim trees and shrubs if needed, and make sure your lawn and flower beds are well maintained. Add some colorful flowers to your front beds and/or flower boxes to brighten up your landscaping.

To bring your house to the next level and really make it stand out from the rest, you want to create some sort of focal piece. Some houses have pre-existing outdoor focal pieces that you can enhance and highlight. For example, a porch on its own is great, but you can make it amazing with some simple improvements like patio furniture or seating. Adding some Adirondack chairs on the front lawn can create a conversational space that buyers will be sure to remember.

Make sure the exterior of your home is as clean as the interior. This can often be accomplished with a simple garden hose. You may even want to rent a pressure washer if the siding, walkway or driveway is stained or dingy.

Thoroughly wash windows and screens, and remove and dark solar screens if you have them. Open shutters, curtains and blinds, to make your house look more inviting from the outside – it will also brighten the inside of the home as well.

Consider a fresh coat of paint on your front door, trim and shutters. Personalizing the home will make your home stand out. Try small, cosmetic improvements like new house numbers, a colorful wreath and a clean front doormat. These minor inexpensive changes can pay off in a big way and help you sell your flip quickly for top dollar.

Looking to buy a new fix and flip? Let Investor Loan Source help with your financing needs.

A Letter from Our CEO, Tom Berry

As I write this letter, I can’t help but think that this will probably be the craziest, most unpredictable experience of my lifetime. First, I hope you and your family members are well and are in good spirits and optimistic about the future. I read in a “good book” one time that “without vision, the people will parish”. I think it is important to always look to the future with vision and wisdom. Fear is crippling and debilitating. It is born of uncertainty and a lack of understanding. Today is certainly ripe for that, isn’t it? So much is unknown right now that I wanted to focus on what we do know and share with you what we at Investor Loan Source have done and what we continue to do, to ensure that we remain strong and secure for our families, investors, lenders and partners.

We have always taken what we have considered a conservative approach to lending and investing. We have never swung for the fences. We keep our pricing at reasonable, sustainable levels, and we have limited exposure as much as possible. When our competitors slashed their margins and raised their LTV maximums, we didn’t chase them. We let borrowers go to them and we focused on diversifying our product lines, so we didn’t have to compete with craziness. It turns out that our strategy worked out well, as many of those competitors are now unable to lend or have closed their doors all together. As a result, we have had record numbers of loan applications in the last 30 days. With this THREE-FOLD increase in applications, we have been able to make changes that will only serve to make us and our loans even stronger.

We raised the credit score requirements of borrowers to get into our A&B loan programs. This results in higher percentage rates on most of our loans without us really raising rates.
We lowered LTV maximums on certain loans. This means they need to bring more of their own money to close.
We have lowered the maximum loan amount for residential fix and flip loans. Now we will generally lend only up to $250,000 in most of our markets, as we believe that the higher priced houses may take a value hit in the next 12 months. As an investor over the last 13 years, I know that the blue collar “affordable housing” is always in short supply and demand increases during rough financial times. This leads to smaller price drops as a percentage on lower priced homes compared to higher priced homes. It creates more work for us since we get paid based on the loan amount and a $500,000 loan takes the same amount of time as a $50,000 loan, while paying only one tenth as much. At this time, we are fine with that to keep the integrity of our loan portfolio as high as possible.
We have diversified into commercial bridge loans that have higher loan amounts in asset classes not effected as greatly by the downturn (if it hits real estate). This has given us the ability to diversify geographically, by asset class and by industry. Our approach is to not have huge exposure in any one place.

While we have taken a cautious attitude through all this turmoil, we are very optimistic about the future. Our borrower payment rates have been outstanding. We have not seen much of a difference, if any, from our normal collection rate. Our Private Equity Funds have been posting phenomenal returns and I expect that to get a little higher, given our ability to charge more interest in the current market. With less competitors, we are able to cherry pick the best loans out there and let the rest lay. While the future is uncertain, with the wisdom of the past and steady patience, opportunities will abound. I will remain diligent and seek to bring in the very best business I can. Donald and I look forward to many more years of our families working with you and your families.

Best Regards,