Flipping houses can be lucrative. To ensure you maximize your ROI, we’ve developed a house flipping checklist for you to follow.
At ABL, we’ve guided house flippers nationwide through the entire flipping process by helping them quickly close on the initial purchase and ensuring they get regular fund disbursements throughout the project. Our goal is to support you from start to finish with our flexible Fix & Flip loans so you can focus on executing the renovation and reselling for a profit.
1. Get Pre-Qualified For a Fix-and-Flip Loan
Before you start shopping for properties in earnest, it’s important to get pre-qualified for a Fix & Flip loan. This lets sellers know you’re serious, making your offers more competitive.
But don’t worry. Getting pre-qualified doesn’t require much upfront. For example, ABL only asks for some details about you and the kind of property you want to flip (e.g., property type, location, purchase price, target closing date, etc.). From there, we’ll let you know within 24 hours if we’re a good fit. Later on, you’ll be asked to provide further project details.
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2. Explore Distressed Properties
With a pre-qualification letter in hand, you’re ready to shop for homes to flip with confidence. The key is to look for properties that are distressed in some way. These could be homes that need major repairs, are in foreclosure, or could use some upgrades.
You can take many approaches here: driving around looking for homes in disrepair (aka driving for dollars), scouring public records for delinquent properties (those with unpaid taxes or mortgage payments), or discovering off-market listings via referrals or real estate data software like PropStream.
Start building a list of potential flipping opportunities that meet your basic investment criteria for loan budget, risk tolerance, location, etc.
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3. Make Offers on Homes with the Most Potential
Next, create a shortlist of properties with the most flipping potential and make offers.
This starts with crunching some numbers to see which deals pencil out. For example, the 70% rule can help eliminate deals that leave little room for profit. It states that you should pay no more than 70% of a property’s after-repair value (ARV) minus renovation costs. Alternatively, you can use ABL’s hard money loan deal calculator for more refined ROI estimates.
Once you’ve narrowed your list to a handful of homes with the most potential, start making offers to the relevant sellers. Be prepared to negotiate with back-and-forth counteroffers. Whatever you do, set a ceiling price, above which a deal isn’t worth it to you, and stick to it.
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4. Finalize Financing and Close the Deal
Once an offer is accepted, it’s time to finalize the financing and close the deal.
You’ll need to hand over any necessary financial and property documents to your lender. Think income and credit reports, property title history, proof of home insurance, contractor agreements, etc. In addition, most lenders require an appraisal to confirm the property’s value.
This is also a good time to get a professional home inspection, which can reveal undiscovered property issues and potential red flags. If the property needs more work than expected, see if the extra repairs will still fit within your budget or try to renegotiate the purchase price.
Once the property passes inspections and the loan underwriting process, finalize the sale (and new mortgage) by signing the closing documents.
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5. Renovate and Upgrade
Now that you own the property, you can start renovating it. At this point, you should already have contractors lined up to do the work, building permits, and a construction schedule. Stick to it as closely as possible to avoid falling behind, which could increase labor and holding costs.
Your Fix & Flip loan will likely also have a draw schedule tied to construction milestones, such as the completion of the foundation, framing, utilities, etc. With each milestone, the lender usually verifies the work before disbursing the next round of funds.
Meanwhile, you’ll likely make interest-only loan payments, which means if you finish the flip early, you might save on total interest costs and boost your overall returns. Unlike many loans, ABL loans have no pre-payment penalty.
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6. Stage and Market the Finished Property
For your hard work to pay off, you must prepare to sell the finished property. This includes running a final inspection to ensure all renovations were completed to code and your satisfaction. From there, you can stage the inside of the home, hire a professional photographer, and get a real estate agent to list the property online and start hosting open houses.
Be strategic about pricing. Sometimes it’s best to list the home at a competitive price to drive demand and incite a bidding war. Other times, it’s better to list at a high price, leaving room for the buyer to negotiate down to the price you want. Just don’t lose sight of your target return.
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7. Sell for a Profit
After comparing and negotiating offers, accept the best deal. You’ll need to sign over the property deed and hand over the keys at the closing table. The sale proceeds will go directly to your lender to pay off your remaining loan balance, and whatever is leftover is yours to keep!
Of course, that’s all easier said than done. To ensure your next flip runs smoothly, you need the right team on your side. Your local ABL team is here to support your flip from start to finish with its market expertise and flexible loan programs. Contact us today to learn more!
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