If you want to start fixing and flipping properties in New Mexico, get ready to put in some work. Flipping homes for a healthy short-term profit is not as easy as those “reality” real estate investors on television make it look. In fact, if you are not a wealthy person to begin with, you are at a big disadvantage.
This is not to say you need wealth to start flipping properties for profit, but it does not hurt. However, you can flip homes for healthy returns without great wealth, and this guide will give you the basics you need to properly flip houses if you have limited funds to start.
What Exactly is “Fixing and Flipping Properties?”
When you fix then flip a property, you are buying a home in need of repairs for less than its market value and trying to sell it quickly once renovations are complete. The goal is to find homes for sale at significantly reduced prices. If you buy a home to flip at its appraised or market value, you put yourself at a big disadvantage. There is little room to make any profit. Obviously, you are not trying to flip a property to break even.
Financing Your Fix and Flip Property
Most new real estate investors have little working capital when they start. So, they are going to need some form of financing to flip their first property. You might think finding loans to flip properties is difficult. The truth is you have several financing options, and some of them are at your fingertips. Here is a short list of financing options:
• Hard Money Loans– This type of financing is used for real estate investment purposes only. The funds come from private investors or companies that specialize in hard money financing. Lenders determine loan amounts based on the after-repair-value (ARV) of your flip. Whether or not you qualify also hinges on the value of your flip after you fix the property.
• Personal Loans- Yes, you can use an unsecured personal loan to financing your flip. In fact, if you qualify for the loan, you can use the financing for anything you want. Keep in mind that personal loans are best for smaller transactions (usually $50,000 or less).
• Home Equity Loans- You can take out a loan against the equity in your primary residence to finance a flip. The rule of thumb here is to have at least 20 percent equity in your home. Your equity is how much your home is worth versus the principal balance of your mortgage.
*Determining Equity- You can calculate your equity by first finding your home’s current value. Then you subtract your mortgage balance from the value. The remaining figure is how much equity you have in your home in dollars. If your home is worth $70,000 and your principal balance is $50,000, you have $20,000 in home equity. To calculate equity as a percentage, divide your home equity in dollars by the properties current value. In this scenario, you have 28 percent equity in your home ($20,000/$70,000 = 28.5 percent).
Find a Property You Want to Flip
Now that you know some basics about fixing and flipping properties and where to find financing, you need to actually find a home to flip. A good deal is not going to walk up to your house and ring your doorbell. Finding the right property is a topic unto itself, but you can still learn some basics.
You have to ask yourself if your comfortable flipping single-family homes, condos or multi-unit properties with tenants. If you are new, you may want to start with a small single-family home or condo. A bargain basement deal on one of these property types probably does not include dealing with current residents. Many of these homes are in default or foreclosure.
However, multi-family properties will probably require you to deal with tenants. Once you buy the property, you are the landlord, and you must address tenant issues until you sell the property. See how finding the right property can determine whether or not a deal is right for you. Some food for thought as you begin your fix and flip journey in New Mexico.
New Mexico Construction Loans
Business owners who want to expand in New Mexico should consider a new commercial construction loan. There are many reasons business owners take out commercial construction loans. This type of loan can help business owners who want to expand their current office buildings or construct a new building from the ground up.
What is a Commercial Construction Loan?
A commercial construction loan is designed to cover the financial cost for the construction of a new office building or the renovation of an existing building. The funds from a commercial construction loan can be used to cover the cost of materials, labor, purchase of the property, and more.
A commercial mortgage is made for business owners who want to purchase existing commercial property, but a commercial construction loan is specifically made for renovation and construction. Although expansion of a business is sometimes necessary, it can be difficult to get there with the high cost associated with new construction and renovations. It can cost thousands to millions of dollars to complete a commercial construction project, and many business owners don’t have the cash to pay for the construction up front.
How do Commercial Construction Loans Work?
Commercial construction loans are different from traditional loans. With most loans, the full amount of the loan is disbursed to the borrower at once. When the borrower has received the funds, he or she will be responsible for paying back the loan. Most commercial loans have a monthly repayment period of at least 10 years.
With commercial loans, a partial amount of the funds will be disbursed throughout the project. The borrower will meet with the lender to establish a draw schedule. After a new milestone is completed, partial funds will be disbursed, which is known as a draw. The first draw may be when the land is purchased, and the second draw may be when the foundation is poured. Most lenders will have an inspector go to the construction and/or renovation site to confirm that the milestone has been met. Partial funds will continue to be disbursed until the project is completed.
Another difference between a commercial construction loan and a traditional loan is how they are repaid. With commercial construction loans, you are only responsible for the interest of the amount that has been disbursed. For instance, if you took out a commercial construction loan for $600,00, but only $100,000 of the loan has been disbursed, then you will only be responsible for paying interest on the $100,000.
With most commercial construction loans, borrowers can pay off the principle in one sum when the construction project has been completed. However, there are times when business owners take out a commercial mortgage. A commercial mortgage will use the property as a collateral. The borrower will pay back the commercial construction loan with the funds from the commercial mortgage. This gives the borrower the opportunity to make locked monthly payments over a set period of time.
The interest rates for a commercial construction loan typically range from 4% to 12%. Business owners with higher credit scores will have lower interest rates. A down payment may be required for a construction loan, which could range from 10% to 30% of the entire loan.
How to Prepare for Taking Out a New Mexico Construction Loan
If you are planning to take out a commercial construction loan in New Mexico, you should prepare a business plan that outlines each step in the construction project. You will also need to have a cost estimate plan that outlines the cost of materials, labor, and other expenses.