Flipping and renting out homes can be an excellent way to create another profitable stream of income. However, if this is your first time going through the process, make sure to keep these rules in mind to ensure things go according to plan.
1. Be ‘Over-Prepared’ When Doing the Numbers
When dealing with any financial aspect of your project, make sure you are over-prepared. You don’t want to over exhaust your resources and quit before getting the chance to do any substantial work on the property.
2. Know Whether You Qualify for ‘Bad Credit Loans’
Bad credit loans can save your entire project if you have poor credit due to unforeseen circumstances. Your FICO credit score can range anywhere from 300 to 850 — the higher, the better chance you’ll receive a favorable loan to start the flipping process. However, some scores that fall under 680 may be denied for a typical loan.
Bad credit loans may be your only shot, so make sure you meet the criteria and meet with a lender who specializes in bad credit loans or in real estate loans.
3. Understand the 70% Rule When Flipping Your Home
This rule states that you (or the investor) should only pay 70% of the after repair value of a property after subtracting the repairs needed. This determines the maximum amount you should pay for the property. But why follow this rule?
For starter’s, it gives you some wiggle room in your budget. Implementing this rule also benefits you by sorting the two most important financial components when flipping homes, the ARV, and the repair costs. Lastly, this guideline will help you determine whether or not the property in question is worth pursuing.
Some Final Words: Need a Hard Money Loan, Private Lending, or a Bad Credit Loan?
There’s a ton of information online when it comes to flipping houses. It can be overwhelming having to drill all of those tips into your brain; however, keep these specific rules in mind when starting your house flipping journey. If you need more guidance, make sure to contact us for more information on your financial options.