3 Things You Should Know Before Flipping a House in 2021
Is Flipping a House a Good Idea in 2021?
Despite the overall negative impact that COVID-19 had on the real estate sector, the house-flipping industry saw a boom in the third quarter of 2020. Returns on investment for flipping were at an all-time high, with the average gross profit rising from $61,800 to 73,766.
Unfortunately, recent data shows this success has taken a dip. Numbers from the fourth quarter of 2020 and the first quarter of 2021, as reported by ATTOM Data, show an average gross profit of about $63,000, with house-flipping accounting for only 2.7 percent of all home sales in Q1 2021. This was due in large part to a shortage of property on the market. Stay-at-home orders forced many flippers to remove listings and avoid showings.
We are now in Quarter 2 of 2021 and gross profits earned from house-flipping are again on the rise, with an average reported rate of $67,000. The fact that flippers saw an increase in profits despite continued restrictions and lack of supply due to COVID means the flipping market will likely only gain more ground once restrictions have been fully lifted. Furthermore, as the Federal forbearance on mortgages is ended, there may be a surplus of distressed homes available for buyers looking to renovate.
Where Should I Start If I Want to Flip a House?
If this is your first time flipping a home, you have chosen a good time. Nevertheless, you will want to do ample research and work with a team of experienced advisors before starting your first house flipping project. Many things must be considered if your flip is to make a profit. Keep the following in mind when looking for your first home to renovate:
Look for single-family homes that have an estimated rehab budget of $50,000 or less.
Understand the Process
Flipping a home comes with inherent risks. You will want to research and understand the process thoroughly before investing any money.
Know Your Budget-And Stick To It
This one is crucial if you are going to make a profit on the house you are flipping. Decide which projects to splurge on, and which ones can be left alone or handled with simpler upgrades.
How Do I Finance a Fix-And Flip Project?
There are a few options to finance your house flipping project. Some of the more popular ones include:
Hard Money Fix and Flip Loans
Many flippers, both experienced and new, opt for something called a hard money loan. This is a short-term loan designed to be paid back within one year. These loans are approved quickly and are given regardless of financial standing since the property itself is used as collateral to secure the loan.
Fix and Flip Cash-Out Refinance
Another option available typically used by more seasoned investors is a cash-out refinance. The flipper refinances the mortgage on an existing property, pays off that loan, and uses the equity to finance a new property. This is a longer-term loan, the same as that of a typical mortgage (15-30 years at a fixed rate).
Fix and Flip Bridge Loans
These loans are typically used to cover the time between two real estate transactions. Flippers use them to finance a new property while waiting for another one to close. This allows them to begin work on a new property without the contingency of selling another and needing to pay off a hard money loan.
Pinetree Financial offers to Denver fix and flip loans all over the state of Colorado, and we guarantee that your loan will not be rejected based on inexperience. Call us today to discuss financing options for your next fix and flip project.