That is one of the reasons why investing is real estate is one of the best ways to make your money work for you. But instead of finding rental property, you can find cheap ugly houses in good neighborhoods, renovated them and sell it at a huge profit.
If you think it’s too good to be true, just look at the hard data. There were more than 200,000 house flipped in the US in 2017 alone! And the average profit for those flips were almost $70,000. Do the math. That’s a lot of money that was created by house flippers.
South Carolina is no exception. It’s a growing state where houses are still in demand.
It’s also a business that just about anyone can get in on. You don’t even need a lot of your own capital to start with. If you have a lot of hustle, scrappy, honest, hard working, and half-way intelligent, you can find good deals and turn them for a quick profit.
Once you flip that first house, you can take the profit from that and do your next flip and double your money in a year.
That first lump of cash required is usually the challenge, but not impossible. You can get a loan from family and friends. You can also take a home equity loan or a home equity line of credit, also know as a HELOC in the lending industry.
You can also take a loan out using your 401K as your collateral. Why wouldn’t you just cash out your 401K? Well, because then you’d have to pay taxes.
This way, you can take the cash equivalent out as a loan without paying income taxes. The big caveat is if you don’t pay back that loan, they will come for your 401K and you’ll ultimately have tax implications as a result.
You can also get a loan from a wealthy individual. There are a lot of rich people who have cash that they want to work for them, but don’t want to do any work themselves.
If they are at all astute, they would know that there’s opportunity for flipping houses. But it’s likely they don’t want to do the work of finding the good deals, buying them, managing a contractor to renovate and selling it back on the market.
Before you ask for a loan, here are things you should have in place before you even make the pitch.
Exact Target Property
Do all of the due diligence beforehand before going to a lender or investor. If you don’t, you’ll burn that opportunity even if you find a good deal.
That means do the research to find the house. Make sure it’s listing far below other comparable houses in the geographic location.
Once you’re located the property, make sure you understand everything that is wrong with it and know what will need to be fixed up before you can sell it again.
Also, make sure the neighborhood is marketable as well. There are historically underprivileged neighborhoods, particularly in the inner city and urban areas, where they are being gentrified.
That means even if it’s not a great area today, if gentrification is happening, it will probably be a good neighborhood in the not too distant future.
Be as generous with your estimated renovation budget as possible. As anyone who has ever done a renovation project knows, they always go over budget and over the deadline. Make sure you make contingencies for that in your plan.
Also, if you’ve never flipped a house before, do a careful walk-through with several contractors to get cost estimates. It’s also important to have a backup plan in case you discover something along the way that will cost a lot more money.
Ongoing Monthly Expenses
In addition to renovation costs, you will have additional ongoing expenses that have nothing to do with renovation.
You may need to pay a Home Owners Association (HOA) fee. You may also need to keep the lawn cut and landscaped depending on what the local HOA requires.
You’ll also need to run electricity and water for the contractors and crew. You’ll also need to pay for various types of insurance while you own the home.
Finally, you will have real estate commissions to pay your agent or agents involved in the deal. You will also having closing costs, such as your lawyer.
These are some of the things you need to consider in South Carolina when you’re looking to get a fix and flip loan.