HGTV and various home improvement shows have captured the interest America with shows about flipping house and the potential income it provides. Flipping simply means to buy a property and sell it again quickly. It can be done with commercial and residential real estate. Generally, this involves fixing up the property or remodeling to enhance the value but that is not always required.
The following points of consideration are an overview collected from real estate experts in Tulsa, OK who advise and coordinate purchases for real estate investors in Oklahoma.
Investor Loans
Investor loans for property flipping are higher risk for the lender so:
Expect to make a down payment - it is unlikely you will find 100% financing
Expect to pay a higher interest rate and/or fees
You will save money if you find alternative financial resources for short-term loans. Such as, equity from other real estate, investment or retirement accounts, personal line of credit or hard-money lenders.
If you had an FHA loan on the house you "flipped", you have to wait until 90 days after you close. Then you will have other restrictions up to one year.
Have a long-term loan source available from more traditional and local sources such as Bok Mortgage.
Consider the condition of the property when considering the kind of loan - most traditional lenders have minimal habitability requirements.
Know your lender's limit on the maximum number of loans they will allow you.
General Real Estate Strategy
Find an experience Realtor to be your advisor. If you select a skilled real estate broker and build a relationship, they will give you free advice whether or not you buy and sell every property through them. Many real estate brokers will advise you on a purchase you are doing on your own if they know you will let them list the property for sale or that you will always use them when you do employ a Realtor.
Know the absorption rate of the type of property your are considering flipping.
Generally avoid niche properties which require specialized use unless the demand is high.
The over hype of flipping real estate has sent many unprepared and ill-advised investors into a financial tailspin. Always have a plan B and C.
Emotion has no place in investing in real estate and is the reason for failure if most investors. Make your purchases on sound logical data and have a plan to sell on logical data.
Time is money in real estate investing. Be prepared with the necessary repair crews to avoid unnecessary loss of time and money. Borrow your Realtor's. (The Baskin Real Estate Specialists post many of their service people at tulsahomecare.com)
Know the cap rate for the property and how it compare to the prevailing cap rate in the area? You may need this information in the event the property does not flip quickly and you have to hold onto it. It should make financial sense to purchase the property in both cases so you have a backup plan.
What is the zoning on the property and will it accommodate the most amount of potential users? Stringent restrictions may make it hard to resell.
Are there any liens against the property and, if corporate owned, are there any outstanding issues with the company per the secretary of state?
If tenant occupied, will the sale of the building nullify any existing leases?
If you plan on buying a multi-tenant building and relocating your business, are there any exclusive use clauses that would prohibit you from operating your business?
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