There are plenty of investment options in the market. Stocks, mutual funds, bonds, annuities, exchange-traded funds, and real estate are just some of them. Of all these options, you are probably interested in real estate, as it is one of the most lucrative options. It can generate substantial profits. However, some people think that investing in real estate is mainly for high-net-worth individuals. In reality, it can also work for smaller investors. “Flipping homes” is an attractive and accessible investment option for almost any type of investor.
What is “Home Flipping”?
Home flipping is when you purchase a real estate property intending to sell it quickly for a profit. However, you need to be aware of the particular factors involved if you want to flip a newly constructed home. The following dos and don’ts of home flipping will help you make the most out of your house flipping deal, so make sure you go through them carefully!
Do: Find the Right Property
The first thing you need to do to start any new construction is to search for a vacant lot, but you need to understand the different plot types. There are three different types of lots available, and to make the right choice, you must have a thorough understanding of each of these types.
Platted lot is a subdivided land with fixed boundaries. It covers an area that meets the minimum zoning requirements and complies with the title’s development standards for flexible lots.
Unimproved lots are available without any essential services, including electricity, water utilities, telephone lines, or street access. An unimproved property does not have a phone box, natural gas, or electricity meters.
A plot that is to be Platted
Plots that are not platted as of yet and are about to go through the process of platting.
Clearly, the ideal situation is to get a good lot, in a well-reputed area, at the lowest cost so that you can invest more in the construction phase. If you invest a lot of money on the land itself, then your budget for construction will be reduced along with your profits.
Don’t: Avoid Standard Mortgages
Once you have found the right lot, the next important decision to make before proceeding with your project is to decide what type of loan you should get? There is a major difference between ground-up construction loans vs. a traditional mortgage when it comes to flipping a new home. We believe that getting a construction loan, as opposed to a mortgage, is the best choice, as a traditional mortgage is not a suitable option for home flipping because it is a long-term loan that can outrun the house-flipping profits.
Do: Hire an Architect
When it comes to ground-up construction for home flipping, using the right architect is essential. You must pick an architect whose expertise lies in new home constructions—specifically for house flipping, as they understand that this type of project is meant to maximize profits. The right professional will help you select stock building plans or design a custom plan that is in alignment with your budget and investment goals.
Don’t: Go Overboard with Construction
It would help if you stopped yourself from going overboard with construction costs. There are amazing new-home construction ideas in the market, but in the case of house flipping, you must keep the scale low. No matter how beautiful your newly constructed home is, you will not get a much higher value than that of other houses in the neighborhood, so keep that in mind as you budget your construction costs. Your additions and embellishments might raise the value of your property, but not enough to render you a good return on your investment.
Do: Hire the Right Contractors
Hiring the right contractors for the construction of a new home is another crucial aspect of investing in flipping a house. Hire a contractor after doing careful research on their previous projects. Read reviews and visit their social media profiles to get a sense of what people are saying about them. You should only consider those who can be trusted to work well without much supervision, as you cannot supervise them continuously throughout the entire process. In fact, if you are unable to be there much at all, you may want to consider hiring someone else to do it for you. Not supervising the activities of contractors can put your house flipping strategy at risk. When someone is consistently at the construction site, it will help keep the contractor in line and on schedule.
Don’t: Do Not Do it Yourself
Many house flipping investors believe that building a new house is no big deal and that they can take it upon themselves to build a house from scratch. They want to believe that it will help them save some money, but does it actually work? From our experience, most of the time, it does not! We’ve seen relatively simple projects become money-pits because the investors wanted to save money by doing some of the work themselves or by hiring “day workers” who are not professionals to do the job.
If you are thinking about flipping a home, keep the above dos and don’ts in mind. Remember, AMI Lenders is here to help you with financing solutions that fit your needs. Whether on an existing real estate property or a wholly new construction project, we are here to serve you with our top-class hard-money lending services. For over 25 years, AMI Lenders has been helping people get home-construction loans with ease, and we can help you with your home flipping strategies.