When To Buy A Fixer-Upper (And When Not To)
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If you are in a flipping mood, what exactly is your plan? Buying a fixer-upper and rehabbing it as an additional stream of income has lit a fire throughout the economy, and novice investors are jumping in headfirst. At this point, you may have watched more than your share of DIY Network and HGTV television shows motivating you to cash-in on the housing market. To get the job done, it all comes down to time and money. Depending on your credit profile and the number of rehabs you have under your belt, funding could potentially be the least of your worries. Timing, however, is a different story.
In real estate, you are never alone. If you are drawn to a property, nine times out of ten another investor is eyeing the listing as well. I don’t blame you for wanting to take advantage of that gut-wrenching feeling in the pit of your stomach indicating that your next investment could evolve into great rewards, because you honestly won’t know until you try. On the other hand, you should ask yourself, based on your present commitments, how available can you be for a fixer-upper and all it demands?
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When potential buyers question the strength of the real estate market, they tend to have a vision of their future purchase wrapped in a bow that resembles a good deal. For that person, the sentiment of having the stars align perfectly and all criteria met may not have a time limit.
Rehabbing homes can come with an array of surprises. The possibility of seeing a profit when you buy a fixer-upper or pocketing savings from rental income understandably sounds attractive. These rewards don’t usually come along without sweat equity in the form of early mornings or late nights. Like any other task in life, you get back what you put in. If you are not able to fully commit to a housing rehab project, you are doing yourself a disservice.
Here are a few signs it may not be a good time to buy a fixer-upper:
If you are planning to purchase a home for yourself, lenders will most likely be more prone to lend you money for a flip after seeing you already had a mortgage in the past. This can also be essential during the rehab process because if you purchase a fixer-upper that needs more work than expected you can always go home to rest. Many people choose to live in their investment properties while they are rehabbing and that can prolong your deadline.
Rehabs need a strict timeline to account for possible outcomes. A few factors you should consider are travel, family, work, and physical health. If you do not have assistance with your house flips to oversee that the work is at least being done correctly and in a timely fashion, you can end up spending unnecessary funds after you buy a fixer-upper.
I know what you’re thinking. Many investors still do very well for themselves when the market declines. This can be due to a number of reasons and experiences.
It is not recommended for beginning investors to take a leap into a weak economy for their property flip.
Do not fail to take your own financial situation into account. If you are struggling to pay your own mortgage or at risk of losing any assets, it would be in your best interest to secure your finances prior to investing in or buying a fixer-upper as you cannot always predict when you’ll see a return or how much.
Numbers rather than emotions typically determine an investor’s motivation. Timing seems crucial for the sole purpose of jumping on an income-producing property before the next investor does. You may not agree with that sense of urgency and that’s okay, too. Not every real estate investor is a house-flipper. If you are looking to find one property that will serve as an income-source and alleviate some of your financial stress then there is no time better than the present.
A common fear is what if I don’t find a renter and lose money? To avoid this, try to find a renter before you close on the secondary property. This will allow you to overlap the needs of the prospective tenant with your own and limit the number of days the property is vacant. You should find comfort in knowing that housing is a necessity that will always be relevant and not a trend, so you are not crazy for wanting to get your feet wet.
Real estate agents have access to endless resources outside of the local MLS. Flipping houses is not a one person job, so connecting with a real estate professional who can help you locate properties, monitor the market, negotiate contracts, and share reputable vendors (title companies, attorneys, contractors, etc.) with you will save you massive time and energy.
As you build your rehabbing dream team, focus on professionals who have your best interest at heart. Your current lender may only work with traditional sales, so in your hunt for lenders who specialize in loans with the intention of rehabbing or long-term rentals be sure to read reviews and interview that person thoroughly before giving out any personal information.
Setting goals as you go will be helpful to you for each rehab you take on. Building rapport with subcontractors, roofers, electricians, landscapers, banks, etc, can bring a lot of ease to your flipping business. If you do not have aspirations of flipping on a full-time basis, then you may want to put emphasis on these steps. It doesn’t hurt to do your homework on who to have on your projects no matter how far and few between they may be.
Licensed Florida Real Estate Agent
Debrah is a Licensed Real Estate Sales Associate and Certified REO & Short Sale Specialist with a growing team of successful agents. She educates future first-time homebuyers via her co-created e-course and local events. Her 90% referral business has allowed her to close over $13M in sales transactions.
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