Flipping House
Project Overview
This project was created in May 2020 to meet the requirements for the class “Front-End Web development I” at Fort Hays State University in Kansas! I applied Web Design skills such as HTML, CSS, JavaScript, JQuery to design the webiste “Flipping House”.
This project is consisted of 8 pages as follow:
- How to find a property?
- Financing Options
- Planning the project
- Scheduling
- When to use a general contractor?
- Inspections
- The closing phase
- Contact Information
How To Find A Property?
Tips for Finding A Property
1. Search For The MLS
The Multiple Listing Service (“MLS”) is a database put together by real estate brokers listing all properties for sale within a geographic area, along with their characteristics and vital statistics.
2. Join A Real Estate Investment Group
Try real estate investment forums, linkedin groups and local meetups.
Real estate investment groups have become relatively common in the last several years. There’s probably some in your area, and they might be worth checking out. They can provide education and networking opportunities that may be useful while searching for a house to flip. Additionally, real estate listings often appear on the websites and monthly newsletters of these groups.
3.Look for Auctions
Estate and foreclosure auctions are good opportunities for a discount purchase. Watch out for bidding wars though!
If you have the ability to pay cash for your property purchase, you could do very well buying property at a sheriff’s sale, estate or private auction.
4. Talk to Wholesalers
Wholesalers are regularly buying and selling, but be wary of their markups!
Wholesalers are in the business of finding rehab properties, putting them under contract and then finding a buyer who will execute the house flip. The buyer will essentially take the place of a wholesaler in the contract, paying a fee to the wholesaler for being the middleman.
5. Get an Agent
If you aren’t too familiar with the area, consider adding an agent to your flipping team.
Financing Options
Fix and Flip Hard Money Loan
A hard money loan is a short-term loan secured by real estate and used by fix and flippers to purchase and renovate a property. Investors typically use hard money loans to purchase, renovate, and sell a property within one year. These loans are ideal for fix and flippers since they finance properties in poor condition.
Cash Out Refinance for Fix and Flip Investments
A fix and flip cash out refinance is a strategy where a fix and flip investor refinances an existing property to finance the purchase of a new investment property. A cash out refinance helps fix and flippers extract equity from an existing property by issuing a new loan and paying off the existing mortgage.
An investment property LOC can only be used on non-owner-occupied properties.
Fix and Flip Home Equity Line of Credit
A home equity line of credit (HELOC) can be another type of fix and flip funding for investors. The HELOC works more like a credit card than a conventional loan. Fix and flip investors are issued a line of credit based on the value of their existing home and can use that credit over the HELOC’s term. Just like a credit card, interest rates are only charged on the amount borrowed until the amount is repaid.
Fix and Flip Investment Property Line of Credit
An investment property line of credit (LOC) is a line of credit similar to a Home Equity Line of Credit (HELOC), except it’s specifically used on investment properties. It works like a credit card where you only pay interest on the money that you actually use. This LOC is for short-term cash needs and can be used for both purchases and renovations of fix and flips.
Fix and Flip Bridge Loans
A fix and flip bridge loan is a temporary loan used to cover the time between two real estate transactions. It’s typically used to purchase one property before selling another property. It allows you to purchase a fix and flip property without having a contingency to sell your other property first. Unlike a hard money loan, you can’t finance rehabs with fix and flip bridge loans
Permanent Bank Loan & Online Mortgage for Fix and Flip Funding
Permanent bank loans and online mortgages are characterized by 15- to 30-year terms and are used to purchase long-term, owner-occupied primary residences or non-owner-occupied investment properties in good condition. Therefore, permanent bank loans and online mortgages are not suitable for fix and flip investors since they typically purchase distressed properties.
Planning the Project
Specific
So, you have made up your mind and you want to gain some gold from real estate investing. The next step is to have a specific goal. You can’t just say I want to create a successful real estate investment portfolio without getting into the basics of real estate investing for beginners which include setting a specific goal. Figure out the specific goal will help you have a clear view of what you are going to do. Then you can go to the next step of how to measure the specific goal you have.
Measurable
All of your real estate investment goals should be able to be measured before getting involved in the investment. A real estate investor can’t simply say: I want to be the best real estate investor in the area. Or I want to be among the best real estate investors. Instead, a measurable goal can be: I want my investment to have a 10% return on investment. Or I want an investment with a $2000 monthly income. Having such measurable goals can help in the assessment of your real estate investment goals.
Achievable
It’s a good start for any beginner real estate investor to have enthusiasm and ambition. These traits will help real estate investors to do their best to achieve their real estate investment goals. However, they are not enough; the goals themselves must always be achievable and attainable especially for the fresh real estate investors. A real estate investor should set real estate investment goals that can be achieved in a certain period of time and that are compatible with the available resources.
Realistic
Real estate investment goals should be realistic. This means that when the real estate investor is aware of his/her resources, the investment property financing, the time and the efforts dedicated for the investment, the goals should be set according to these factors. You can’t, for example, start with a humble capital and expect to become rich from one real estate investment. Or aim to look after tens of properties by yourself while working a full time job even if you are a hard worker.
Scheduling
The time it takes to flip a house varies wildly from project to project. Depending on how efficient your contractor crew is and how smoothly the buy and sell process goes, the process can take as little as six weeks and as much as half a year or more. Here’s some examples of the timeline for house flipping:
Buying: 5-10 days
You go in all cash which shortens the process considerably but there’s still a processing time. The seller is probably a bank who hopefully already has approval to sell the house at the agreed upon price or a private seller.
Time Burners: It’s a short-sale or an estate sale that require approval from a third party like a lender(s) or a court. Extra time: 1-3 months.
Remodeling: 7-21 days
You have a good crew that knows what you want and just hammers it out. The required rehab is mostly cosmetic with a few structural fixes.
– Time Burners: You’ve never done this before and you are trying to piece together contractors for each task. The house surprises you with more structural damage to things like the foundation, plumbing, electrical, and/or roof than you had thought. Extra time: 1-3 months.
Selling: 31-55 days
You advertise for 10 days, after which you have a few good offers in hand. You enter escrow with most likely a financed buyer who takes 21-45 days to close depending on the type of loan they are trying to get. Everything goes smoothly and escrow closes on time or, god forbid, ahead of schedule.
Time Burner: The market shifted from under you and you can’t find a buyer. You end up price reducing every two weeks for the next few months.
When To Use A General Contractor?
Get References from People You Trust
A recommendation from a friend in the business, a colleague, or a neighbor is one of the best sources for finding reputable and trust-worthy contractors. People you already know will be honest with you and give you an accurate account of their experience. You may even be able to see the contractor’s work at a friend’s house before moving forward.
Have the Contractor Provide References
If you dont have any overlap socially, ask the contractor for a list of references who are not related to or affiliated with him. Make sure you get at least 3-5 so you know you are getting legitimate testimonials and ask for before and after photos.
Check to Make Sure They Are Licensed & Insured
Ask for proof and then check with your state’s contractors licensing board for verification. There are many contractors that are operating their businesses without the proper licensing.
Obtain 3 Bids
Ask each contractor that you speak with the same questions. The lowest bid will not always save you the most money and the most expensive bid does not guarantee royal treatment. Because of the fixed costs of materials and labor, a stunningly low bid can be a red flag. Go with the contractor and bid that is the most economical and makes sense to you.
Compare Apples to Apples
It is best to make sure written bids cover the same line items. If one contractor added additional items or left certain items off of the list it can be hard to compare each contractors price quote evenly. Create your own itemized spreadsheet and put each contractor’s bid on it to make the comparison easier.
Understand How the Payment Schedule Works
When it comes to money, make sure you that both you and the contractor agree to the terms and that you have them in writing. Find out what happens in the case that a new part is needed or if you provide your own materials. It is best not to pay upfront for work that is not yet completed.
Check to Make Sure They Are Licensed & Insured
Ask for proof and then check with your state’s contractors licensing board for verification. There are many contractors that are operating their businesses without the proper licensing and insurance requirements including workman’s compensation insurance. This step will serve to filter the unqualified so you know that you are working with a reputable contractor. Its a little more work for you, but absolutely necessary before you hire a contractor.
Make Sure the Contractor Can Do the Job
As simple as this sounds, there are still many people who hire a contractor that did a great job on a friends house, only to find out that the project was in a different area of expertise. For example, make sure that the contractor who did the plumbing and electrical job for your friend knows how to properly install doors and windows if that is what you are hiring them for.
Inspection
Buyer’s Pre-Purchase Home Inspection
The Buyer’s Pre-Purchase Home Inspection provides a comprehensive examination of existing homes, consisting of a visual inspection of your home from roof to foundation. The goal of this inspection is to objectively identify material defects in the systems, structures and components of the home, in adherence to ASHI® & NAHI® Standards.
Our inspectors will inspect the readily accessible systems and components of the house, including the structural system, roof system, exterior, plumbing system, electrical system, heating system, air conditioning system, insulation & ventilation, interior, and fireplaces. Our inspectors will report on those systems and components inspected which, in the professional opinion of the inspector, are significantly deficient or are near the end of their service lives. Our inspectors will also endeavor to provide a reason why, if not self-evident, the system or component is significantly deficient or near the end of its service life. In addition, our inspectors will include their recommendations to correct or monitor any deficiencies noted in the inspection report.
Seller’s Pre-Listing Inspection
Thinking of selling your home? Worried there may be red flags that arise once an offer is made and the buyer’s inspector gets involved? A pre-listing inspection is a minimal investment with vast return at negotiation time.<br
Knowing what the buyer’s inspection will reveal is advantageous. A Pre-listing inspection can set your mind at ease and give you the flexibility to handle repairs and safety concerns that need to be addressed to sell your home. You will have more control over how the repairs are completed and more time to complete them. Fixing needed repairs in advance and knowing what concerns could still be there can make for a smoother negotiation and closing.
The Closing Phase
Negotiating
The house closing process for sellers starts once offers begin to come in, so be ready to negotiate. Even if the offer is at the asking price you can counteroffer, especially if you have multiple offers on the table.
When a buyer makes you an offer on your property, you have three options: You can accept the terms as they are, you can counteroffer and modify some of the terms or you can reject the offer and walk away.
Closing Costs and Taxes
Make sure you are aware of the seller’s closing costs. How will they affect your bottom line? You will also owe the government money from this transaction. Do you know how much? During the house closing process for sellers, closing costs can add up to a significant amount for both the buyer and the seller when the real estate title is transferred. Usually, the seller will need to pay a real estate broker’s commission, closing fees, title fees, a portion of transfer taxes and all unpaid school and real estate taxes accrued during their ownership period.
Agent Percentage
An agent always gets a cut of the sale. What is the right percentage? Should you negotiate it down?
If you brought a realtor onto your house flipping team, depending on where you are in the US, real estate agents typically get paid between 5% – 7% of the selling price of a property. You will need to do your own research to see what the appropriate rate is in your area. Generally, the seller pays the agents’ commissions, and if there are both a buying and a selling agent, the commission will be split between them. You need to remember that although it seems like a lot of money, the agent does not get paid anything for her work until the property has successfully sold.
Closing
Sign the paperwork to transfer the file. Make sure there are no errors. What do you do if there are? Do you need a lawyer? What does the title company do at closing?
In simple terms, the closing is when the buyer gives the seller money in exchange for the property deed. The buyer and the seller should attend the closing, along with, their real estate agents, a closing agent and their attorneys (if that is customary in your part of the country).
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