What Is the Housing Market Cycle?

The real estate cycle is the natural process of growing, expanding, and receding in the real estate market. It’s generally divided into four stages: recovery, expansion, hyper-supply, and recession. Each cycle phase is unique and impacts the real estate market differently, like price, vacancies, and inventory.

People generally estimate that the real estate market cycle takes an average of between 10-18 years. However, this can change pretty drastically depending on some of the factors that affect the market. Many different things affect the natural flow of real estate cycles, like the following:

• Interest rates
• Economic health
• Demographics
• Government policies
• Real estate development
• Business growth
• Employment rates

Use this real estate cycle chart to help identify the state of the market (we’ll use this chart throughout the article to show the various stages):

Why Investors Need to Understand the Cycle

If you want to be a successful real estate investor, you need to understand the market beyond a real estate cycle chart. Investing is a long-term strategy, and it’s easy to make poor decisions if you don’t understand how the market naturally ebbs and flows. Understanding the real estate market cycles will help you to do the following:

• Know when the optimal times are to buy and sell
• Adjust your pricing strategies for buying and selling based on the state of the market, demand, and pricing changes
• Generate a higher profit because you have a long-term perspective
• Avoid poor investments by making choices before the market makes a downturn

Understanding the housing market cycle is essential to make profitable investments. Learn how to plan even more effectively in our guide to making a real estate investment business plan.

Stages of the Housing Market Cycle

At any point, many factors affect the real estate market. However, every change in the market can fit into one of four stages of the real estate cycle: recovery, expansion, hypersupply, and recession.

1. Recovery

The first part of the real estate cycle is right after a recession when the market is trying to recover. At the beginning of the recovery phase, people still feel the effects of the recession. There is typically an excess supply of properties that doesn’t match a decline in demand. This phenomenon creates a drop in the prices of rent and properties.

What investors should do during recovery:

• Purchase below-market properties (best to do in the early stages of recovery)
• Sell renovated properties that were purchased during a recession
• Negotiate property prices to get undervalued properties or the best value for your flipped homes

2. Expansion

As recovery continues, some call parts of this phase “the honeymoon.” This is when the general economy is growing, employment rates are starting to improve, and demand for real estate is increasing. You’ll see signs of the expansion phase when properties sell more quickly, rent prices are starting to increase, and there is a higher competition for bank foreclosures. This is the part of the real estate cycle when supply and demand are the most balanced.

What investors should do during expansion:

• Research growing areas to invest in locations that are in high demand
• Renovate or develop properties (high demand justifies the cost)

3. Hypersupply

The next part of the housing market cycle is when the pendulum swings a little too far in the opposite direction, and now the supply of real estate exceeds the demand for it. This can be caused by overbuilding during the expansion phase. Watch for this part of the real estate market cycle by looking for low unemployment rates, quickly selling properties, and increases in property and rent prices.

It’s common for some investors to panic when they find themselves in this spot on the housing market cycle graph because they know a recession is coming. You can always liquidate your assets, but it’s often a wise strategy to hold properties and generate short-term cash flow. However, it’s smart to prepare for an upcoming recession by adjusting your pricing strategy.

What investors should do during hypersupply:

• Hold properties and let them appreciate
• Focus on generating short-term cash flow
• Prepare for upcoming recession

4. Recession

Of all the real estate market cycles, the recession stage is the most daunting for investors. At this point, there is an overabundance of inventory that surpasses demand. This means there are more vacancies, and prices start to fall again. During this stage, job growth slows down, leaving fewer buyers and renters to fill your rentals. At the same time, home values increase more quickly. Even though recessions are typically challenging for rental property owners, slow periods of the economy are the best time to invest in real estate.

What investors should do during a recession:

• Buy distressed, undervalued properties with high long-term potential
• Look for distressed properties or those in foreclosure
• Develop a long-term rental or flip strategy for investments

Frequently Asked Questions (FAQs)

What are the four cycles of real estate?

How long is the housing market cycle?

What phase of the real estate cycle are we in in 2024?

Bringing It All Together

Understanding the real estate market cycle can be overwhelming at first, but it’s an extremely important concept to master for aspiring real estate investors. Make sure to understand the ins and outs of each part of the cycle and learn how to recognize shifts in the housing market cycle to make the best decisions for your business.

The post How Smart Investors Decipher & Respond to Real Estate Market Cycles appeared first on The Close.

What Is Cash Flow in Real Estate?

Cash flow in property investment simply refers to the difference between the money you take in and what you spend. Positive cash flow means your income exceeds your expenses, and negative cash flow indicates the opposite. 

It’s a very simple concept but fundamental to real estate investment practices. A positive cash flow will provide an investor with continuous income and financial stability to reinvest in more properties. Understanding cash flow from real estate will help you make informed buying, holding, and selling decisions regarding property.

Why Do Investors Care About Cash Flow From Real Estate?

Cash flow is the lifeblood of real estate investing. It will dictate whether the property will become a financial liability or an asset. Consistent cash flow can provide for mortgage, maintenance, and other expenses. This padding in your bank account will help safeguard against market downturns or other cost surprises. High cash flow properties will also appreciate over time and increase your overall portfolio. The objective of anyone diving into real estate investing is to get the highest return on their investments. 

How to Calculate Cash Flow in Real Estate

Any serious real estate investor must learn to calculate cash flow. The investor will use these equations to understand the property’s profitability and thus be able to make a decent investment decision accordingly. Beyond the cash flow formula, you can use other valuable calculations to enhance the analysis: the CAP rate and the 1% rule. Here are the formulas for the necessary calculations: 

Real Estate Cash Flow Formula

This formula helps determine the profitability of a property by calculating the net income after all expenses.

Cash Flow = Total Rental Income − Total Operating Expenses (Operating Expenses + Vacancy Costs + Repair Costs)

Example of positive cash flow: Imagine you own a rental property that generates $3,000 per month in rental income. Your monthly operating expenses, including mortgage payments, property taxes, insurance, maintenance, and management fees, total $2,000. 

Using the cash flow formula:

$3,000 − $2,000 = $1,000 (Cash Flow)

In this example, the property provides a positive cash flow of $1,000 monthly, indicating a profitable investment. 

Example of negative cash flow: Let’s take the example above with a property generating $3,000 per month in rental income, but now the monthly operating expenses are $4000 because this property has a higher property tax and additional maintenance that must be paid for monthly. 

Using the cash flow formula:

$3,000 − $4,000 = -$1,000 (Cash Flow)

This example showcases a negative cash flow that indicates this wouldn’t be a profitable investment. 

1% Rule Calculation

The 1% rule is a guideline for a quick and easy way to check that the rental income will more than likely pay off most expenses, indicating some possible positive cash flow. Keep in mind that it is an estimation. Here’s how to calculate it:

• Determine the purchase price: Find out the total cost of the property, including any closing costs and necessary repairs or upgrades.
• Calculate 1% of the purchase price: Multiply the purchase price by 1%.

Purchase Price × 1% (0.01) = Estimated Cash Flow

Example 1% rule calculation: Suppose you are considering buying a property for $200,000. To apply the 1% rule:

1% of Purchase Price = $200,000 × 0.01 = $2,000 (Estimated Cash Flow)

According to the 1% rule, the property should generate at least $2,000 monthly rental income to be considered a good investment. If the expected rental income meets or exceeds this amount, the property will likely provide positive cash flow, making it a potentially sound investment.

Cap Rate

Using the cap rate formula, also known as the capitalization rate, will be beneficial when comparing the potential return on investment among different properties. This calculation is more complicated and involves a few extra steps. 

Net Operating Income (NOI) / ​Purchase Price = Cap Rate 

Step 1: Determine net operating income (NOI): Calculate the annual rental income and subtract all operating expenses.

Total Rental Income − Total Operating Expenses = NOI

John owns a rental property that generates $3,000 monthly in rental income, totaling $36,000 annually. His annual operating expenses, which include mortgage payments, property taxes, insurance, and maintenance, amount to $1,000 per month, or $12,000 per year. Calculate his NOI below: 

$36,000 (Rental Income) − $12,000 (Operating Expenses) = $24,000 (NOI)

Step 2: Determine Purchase Price: Find out the total purchase price of the property. The total purchase price can include the property cost, closing costs, inspection fees, and necessary repairs or renovations.

$250,000 (Property Price) + $15,000 (Closing Costs) + $34,600 (Repairs/Renovations) + $400 (Inspection Cost) = $300,000 Purchase Price

Step 3: Calculate the Cap Rate using the above formula (NOI / Purchase Price = Cap Rate)

$24,000 (NOI) / $300,000 (Purchase Price) = 0.08 or 8% (Cap Rate)

In this example, the property has a cap rate of 8%. This percentage means the property generates an 8% return on investment based on its net operating income. A higher cap rate generally indicates a more profitable investment.  

What Factors Affect Cash Flow? 

Several factors may impact cash flow in real estate investing, so it will be important to understand the variables to maintain positive cash flow. Here are the critical elements that influence cash flow most:

• Expenses: Large negative cash flow items include operating expenses like mortgage payments, property taxes, insurance, maintenance, utilities, and property management fees. Other current and nonrecurring expenses that impact your profitability might include major repairs or emergency maintenance.
• Rental income: How much you can charge for rent depends on location, property condition, and market demand. High vacancy or high turnover rates lower rental income, hurting cash flow.
• Rental vacancies: The more vacant a property is, the less rental income will be collected. Effective tenant retention strategies and rigorous screening processes will help minimize vacancies and keep cash flowing.
• Market conditions: Economic conditions, interest rates, and local real estate markets drive rental rates and property values. Shifts in these can negatively or positively affect cash flow.
• Property management: Good property management keeps rent collection, maintenance, and tenant relations in check to provide steady cash flow. Poor management increases vacancies and raises expenses, which will cut profit margins.

By keeping these factors in control, investors can have an inflow of cash to make real estate investing profitable and sustainable.

Baselane’s rent collection platform is an excellent avenue to stabilize your rental income. Baselane provides automated payment reminders and seamless online payment options to minimize late or missing payments. This ensures timely reception of your rental income every single time. The platform also provides detailed tracking and reporting features that allow landlords to monitor payments and manage finances more efficiently. 

Baselane will help property owners maintain consistent income, reduce administrative work, and focus more on growing real estate investments.

Tips to Increase Cash Flow

Increasing cash flow in real estate requires raising income and reducing expenses. Having a strategic approach to managing your properties as a part of your investing business plan can radically improve profitability. Here are some hands-on tips for maximizing the cash flow of your real estate:

• Increase rental income: Renovate the property, add amenities, consider short-term rentals, and adjust the rent to make it more marketable.
• Reduce vacancies: Enforce tenant screening and incentives for lease renewal, and maintain good relations with tenants.
• Lower operating expenses: Check insurance rates, compare property management fees, maintain the property, and invest in energy-efficient upgrades.
• Optimize financing: Refinance your loan, pay off that high-interest debt, and find alternative ways to finance your purchases.
• Increase efficiency: Implement real estate management software, preventative maintenance, and monitor cash flow regularly.

Frequently Asked Questions (FAQs)

What is a good cash flow ratio in real estate?

How do you make sure a property's cash flows?

What type of real estate has the most cash flow?

Bringing It All Together

Positive cash flow in real estate is considered the central factor in any successful property investment. After all, the objective of investing is to make money, right? Every investor must take time and perform due diligence before investing in any property. That includes performing market analysis, properly calculating potential income and expenses, and considering improvements needed for the property to gain a higher rental value. 

Look for properties with potential for solid cash flow, such as multifamily units or short-term rentals in hot spots. Run those properties professionally, tracking their financial performance closely to adjust your strategy as you go. Keeping an eye on financial performance and tweaking your plan as needed will help keep that cash flowing to ensure your real estate ventures are not just profitable but can also provide you with some enjoyment.

The post Cash Flow in Real Estate: Overview, Definition & Calculations appeared first on The Close.

What Is the BRRRR Method?

“BRRRR” is an acronym for buy, repair, rent, refinance, and repeat. It can be done by anyone who can purchase a property, allowing investors to build equity immediately after renovating or repairing it by doing a cash-out refinance. Plus, the exact process can be repeated over and over, massively increasing your equity and investment portfolio.

The price of rent has jumped 30.4% nationwide between 2019 and 2023, so renting out a property is likely to be profitable. However, learning as much as possible before diving into any real estate investing strategy is always important. To find out if BRRRR is right for your next project, check out Kiavi’s free Breaking Down BRRRR e-book below. It covers the method’s pros and cons, tips for getting the right loan for your project, and even the best home rehab trends to attract high-income tenants.

Why the BRRRR Method Is an Excellent Investment Strategy

BRRRR investing enables you to build a portfolio without buying properties in cash. Because you will do a cash-out refinance once the property has been renovated and leased, you’ll make a quick profit that you can use to reinvest in another property while enjoying the advantages of owning a rental. 

When done correctly, the BRRRR method can grow your net worth, generate passive income, and eventually lead to financial independence by enabling you to own and rent real estate uniquely and continuously. Here are some of the more specific pros and cons of using the BRRRR strategy to invest in real estate:

How to Use the BRRRR Method

Let’s take a closer look at the BRRRR, meaning going through it step-by-step. While the process is relatively simple in theory, finding the right property, renovating, financing, and managing a rental can be challenging—even for experienced real estate professionals. Let’s dig into each part.

1. Buy

For the BRRRR method to be profitable, you have to find the right undervalued property. Look for homes you can do low-cost improvements on to increase their value, which will increase your equity in step 4. The more discounted a home you can secure, the more equity you’ll have at this step in the process.

Also, look for properties likely to rent out easily and quickly. For example, condos or apartments near a university will be in high demand. Once you’ve found an undervalued property, it’s time to consider the best option for financing. The typical finance options for the BRRRR method are as follows:

• Hard money loans: These loans are typically short-term and come from a private, non-bank lender. The application process for hard money lenders differs from a typical mortgage; the lender will prioritize the property’s investment potential over your credit. Interest rates are generally much higher than a typical mortgage, generally between 10% and 18%.
• Cash: This means that you would not use any financing and would simply pay for the property entirely in cash. 

Rule of 70%

A smart investment rule of thumb is the Rule of 70%. This rule says you should only spend 70% of the property’s after-repair value (ARV) minus repair expenses. For example, if you’re looking at a $400,000 investment property that requires $80,000 of repairs and renovations, you shouldn’t spend more than $200,000 on it. Ideally, the remaining 30% can be used on closing costs and realtor commissions while still leaving a healthy profit leftover.

2. Rehab

The rehab or renovation part of the process is the part that requires the most elbow grease—but not necessarily your own! Focus on renovations and repairs with the lowest costs that will make the property attractive to tenants. You should know how much you have to spend on repairs after purchasing the home.

The rehab process has three main parts:

• Finding a trustworthy contractor: You’ll need a professional contractor with experience with the types of repairs and renovations you need. Ask other investors and realtors for their recommendations, and then build a relationship with a contractor you can (hopefully) use again.
• Staying on schedule and on budget: Renovations always take time and money. Plus, the longer a renovation takes, the higher your carrying costs. Keeping your project on track is possible, but it takes plenty of work.
• Maximizing your ROI: Make sure you choose the renovations that will have the best ROI and set the property up for long-term success.

3. Rent

If you were doing a fix-and-flip, this is the time you would sell the home. However, with the BRRRR method, this is when you turn your property into a cash-generating asset by finding tenants and renting it out.

You will have to move relatively quickly here because, at this point, your expenses will likely be chewing a hole in your wallet. Make sure you analyze your cash flow thoroughly as you price your new rental. You could hire a property management company to market your property and screen renters, or you can do it yourself with the sales, finance, and communication skills you’ve learned as a real estate agent. 

4. Refinance

After your property has been refurbished and leased, do a cash-out refinance to turn the equity in the house into cash. This moment is when the BRRRR method literally proves its worth in profits! Not only does this save you money, but cash-out refinances also have a lower interest rate than a home equity loan or line of credit (HELOC). Plus, you can deduct the interest from your taxes.

5. Repeat

If you want to build a real estate investment portfolio, you can use the money from the refinance as a down payment on your next BRRRR property. This time, you’ll have more expertise, a growing network of contractors, and a cash-generating rental property under your belt. You might even use the BRRRR method to create a large rental portfolio. By choosing smart properties and the right renovations, the sky’s the limit.

Frequently Asked Questions (FAQs)

What is the 70% rule for BRRRR?

What are the disadvantages of BRRRR?

Is the BRRRR method worth it?

Bringing It All Together

The BRRRR method is an excellent real estate investing strategy that can help agents become investors, build equity, and scale their investment portfolios quickly. However, it takes a lot of time, research, and effort to do it successfully. Make sure you thoroughly research and plan each step of the process using our guide to be successful. Good luck!

The post What Is the BRRRR Method & How Does It Work in Real Estate? appeared first on The Close.

• Kiavi: Best for rapid financing for quick property flips
• RCN Capital: Best for investors requiring large loan amounts 
• Lima One Capital: Best for loan products for every type of investment strategy 
• Groundfloor: Best for new investors with crowdsourced loan opportunities
• The Investor’s Edge: Best for personalized investment strategies through one-on-one consultations
• New Silver: Best for tech-savvy investors seeking fast, data-driven loan approvals

Type of Software	Best for	Available markets	Learn More
	Obtaining quick financing for your projects	32 states plus Washington, D.C.	Kiavi ↓
	Investors needing large loan amounts	All states except AK, NV, ND, SD, and VT	RCN Capital ↓
	Loan products for every type of investment strategy	46 states plus Washington, D.C.	Lima One Capital ↓
	New investors with crowdsourced loan opportunities	Nationwide	Groundfloor ↓
	Investors that need 1-on-1 assistance with their projects	39 states	The Investor’s Edge ↓
	Investors needing instant loan approvals	39 states	New Silver ↓

Type of Software	Best for	Available markets	Learn More
	Obtaining quick financing for your projects	32 states plus Washington, D.C.	Kiavi ↓
	Investors needing large loan amounts	All states except AK, NV, ND, SD, and VT	RCN Capital ↓
	Loan products for every type of investment strategy	46 states plus Washington, D.C.	Lima One Capital ↓
	New investors with crowdsourced loan opportunities	Nationwide	Groundfloor ↓
	Investors that need 1-on-1 assistance with their projects	39 states	The Investor’s Edge ↓
	Investors needing instant loan approvals	39 states	New Silver ↓

Kiavi: Best for Rapid Financing for Quick Property Flips

Pros Has no application fees Can close in as little as 7 days Offers experienced customer support Lends to business entities	Kiavi Rates & Terms Interest rate: 9.25% to 12% interest only Loan-to-value ratio (LTV): 95% LTC (loan-to-cost), up to 100% of rehab costs, 80% ARV (after-repair value) Upfront fees: No upfront fees; 2% to 3% origination fee Term: 12 to 24 months Credit requirement: 650 FICO score, no hard credit pull Min and max loan amount: $75,000 to $3 million Prepayment penalty: Yes Property types: Single-family homes, attached and detached planned unit developments (PUDs), and 2-4 unit rentals
Cons Is not available in all states Requires appraisal for rental loans Cannot get long-term financing as a prepayment penalty

Why I Chose Kiavi 

I chose Kiavi as one of the best hard money lenders for rapid financing for quick property flips because of their efficient loan processing. They specifically offer fix and flip loans with rates as low as 9.25%. Because of their swift financing process, inventors can compete with all-cash buyers on new purchases. Their application process bypasses tedious paperwork like pay stubs and W-2s, as their technology can cut through the clutter and get you approved quickly.

Additional Features

• Prequalification: With just a soft credit pull, real estate investors can prepare to make quick offers on any opportunities that arise. 
• Flexible loan amounts: With loans up to $3 million, Kiavi can accommodate small renovations and large-scale projects.

RCN Capital: Best for Investors Requiring Large Loan Amounts

Pros Can close in as little as 10 days Has in-house loan approvals Has dedicated customer service Has funding for new construction projects	RCN Capital Rates & Terms Interest rate: 9.99%% to 12%, interest only; varying based on investing experience Loan-to-value ratio: Up to 90% of the purchase price, 100% of renovation cost (not to exceed 75% of ARV) Term: 12 to 18 months Upfront fees: No upfront fees. 1% to 5% origination fee Credit requirement: 660 minimum credit score Maximum loan amount: $2 million generally, up to $2.5 million for properties with 5+ units Prepayment penalty: None Property types: Condo, townhouse, single-family, duplex, multiunit, mixed-use; not for owner-occupied properties
Cons Has no nationwide coverage Requires appraisal for all loans Has a minimum loan amount that may be high for new investors Has no funding for owner-occupied residential properties

Why I Chose RCN Capital

I selected RCN Capital because it’s one of the hard money lenders for real estate that offers loans up to $2.5 million. This amount is significantly higher than many other hard money loan lenders, making it ideal for investors handling large-scale developments or multiple rental properties. RCN determines the maximum loan value based on the loan program and the value of the real estate asset as collateral. Unlike more tech-forward lenders, RCN requires a typical application process to include credit reports, background checks, bank statements, property appraisals, etc.

Additional Features

• Rehab budget builder: This tool is available to help investors analyze their investments to understand cost, risk, ROI, etc.
• Video Library: It includes up-to-date videos that offer market updates, investment tips, and motivational content.

Lima One Capital: Best for Loan Products for Every Type of Investment Strategy

Pros Has clearly outlined loan terms Approves loan in under ten days Has a simple renewal process once approved Has an established investor referral program	Lima One Capital Rates & Terms Interest rate: 9.6% to 12% interest only Loan-to-value ratio: 92.5% of LTC, 75% ARV Term: 13 to 24 months Upfront fees: 1% to 2.25% of the loan amount Credit requirement: 620 minimum credit score, 660 for inexperienced borrowers, options for nonrecourse and soft credit pulls available Maximum loan amount: $3 million Prepayment penalty: None Property types: Townhouse, single-family, multiunit up to 4; not for owner-occupied properties
Cons Has limited coverage in certain states Might require personal guarantees Requires high credit scores for some programs May not be a good option for new investors

Why I Chose Lima One Capital

Lima One Capital’s extensive range of loan products makes it the best hard money lender for supporting every type of investment strategy. Even within each loan product, like fix and flip loans, there are multiple financing options for flipping, fix-to-rent, and bridge loans. They also provide loans for rentals, new construction, multifamily properties, and short-term rentals. In addition, they offer investors a variety of loan terms and structure options like loans from 13-24 months, nonrecourse, single loans, and portfolios. Best of all, investors only have to pay interest on what they draw and not on unused funds.

Additional Features

• Case studies: Detailed case studies on their website illustrate the strategies, financial figures, challenges, and outcomes of real-world property investments.
• Podcast: A podcast covers various topics relevant to real estate investing and provides ongoing education and industry insights in an easily accessible audio format.

Groundfloor: Best for New Investors With Crowdsourced Loan Opportunities

Pros Has no hard credit pulls Has deferred payments available Has minimum loan amount of $50,000 Has no minimum transaction experience	Groundfloor Rates & Terms Interest rate: Starting at 7.5% Loan-to-value ratio: 80% to 100% of LTC, 70% of ARV Upfront fees: $495 evaluation fee, 2.75% to 4% origination fee (can be financed), $1,200 doc prep fee Credit requirement: 650 minimum credit score Maximum loan amount: $75,000 to $750,000 Prepayment penalty: None after three months Property types: New construction, condo, townhome, single-family, multiunits up to four
Cons Requires a higher minimum credit score Has a minimum interest requirement for prepayment Has a longer application closing timeline Has high closing fees

Why I Chose Groundfloor

Groundfloor is ideal for new investors because of the lack of transaction experience required. They are one of the national hard money lenders that allows investors to start with smaller amounts and gain experience in real estate financing. The trade-off for a lack of investor experience is that Groundfloor will require a higher credit score. They provide a comprehensive education hub for investors to access videos on growing wealth and budgeting their finances. I also found that their crowdfunding investment options offer a great opportunity for new investors to invest in real estate without taking on the purchasing burden.

Additional Features

• Blog: A regularly updated blog provides insights, updates, and educational content related to real estate investing and personal finance.
• Debt service coverage ratio (DSCR) loans: Long-term loans are available based on cash flow generated by the property instead of loan approvals based on the investor’s income. 

The Investor’s Edge: Best for Personalized Investment Strategies through 1:1 Consultations

Pros Has 100% funding options available Is ideal for new investors Offers free lending consultation Has available funding for multiple properties	The Investor’s Edge Rates & Terms Interest rate: 12% to 18% interest only, with the option to roll monthly interest payments into the final payoff statement. Loan-to-value ratio: 80 to 100% of LTC, 75% of ARV Upfront fees: $495 evaluation fee, 3% to 5% origination fee (can be financed), $1,200 doc prep fee Credit requirement: No minimum credit score Maximum loan amount: $250,000 for 100% loans, $1 million for all others Prepayment penalty: None Property types: New construction, condo, townhome, single-family, multiunits up to 4
Cons Has higher interest rates compared with competitors’ Can take up to 12 days to approve loans Has website information that can be overwhelming to new investors Does not clearly list loan details

Why I Chose The Investor’s Edge

I am a fan of The Investor’s Edge as the best for personalized investment strategies due to their focus on partnering with investors and their projects. They offer free one-on-one consultations to help investors identify which investment strategies will help them reach their financial goals. Beyond the consultations, the team at The Investor’s Edge team will help investors identify, fund, and sell their properties. I also appreciate the availability of informative courses tailored to home and land flipping for new investors.

Additional Features

• Gap financing: It is a type of short-term loan available to investors that covers the difference between the total funding needed for a project and the principal amount already secured. 
• The Investor’s Edge Software: It is a comprehensive tool designed for investors to efficiently perform real estate market analysis, property valuation, and investment strategy planning. 

New Silver: Best for Tech-savvy Investors Seeking Fast, Data-driven Loan Approvals

Pros Provides instant proof of funds documents Has no hard credit pulls Offers repeat borrower discounts Offers immediate online approval	New Silver Rates & Terms Interest rate: 10% to 12.75% interest only Loan-to-value ratio: 90% of LTC, 80% of ARV Term: Up to 24 months Upfront fees: 1.875% to 3% origination fee ($3,500 minimum, can be financed), $759 underwriting fee, $1,250 legal fee, $350 doc prep fee Credit requirement: 650 minimum credit score; no hard credit pull Maximum loan amount: $100,000 to $5 million Prepayment penalty: None Property types: Residential 1 to 12 units, including single-family, condo, and townhomes; multifamily up to 50 units
Cons Has fees for appraisals Has no closing cost credits Limits the maximum size to 5 acres for fix and flip loans Only offers loans for residential properties with 1 to 50 units

Why I Chose New Silver

New Silver is one of the hard money loan lenders ideal for tech-savvy investors because of its efficient, AI-driven loan approval processes. Investors can get instant online approval in just five minutes and close in as little as five days. Loans secured through real estate collateral only require a soft credit pull in addition to the property’s value. They do not need income verification for loan approval. I appreciate the platform’s focus on streamlining the lending process, which minimizes paperwork and accelerates the timeline from application to funding.

Additional Features

• Advantage program: It has enhanced loan terms and rates to repeat borrowers who have successfully completed previous projects with New Silver. 
• Fintech scholarship: It has an initiative to support students pursuing studies in financial technology-related fields. 

What Is a Hard Money Lender? 

Hard money lending companies provide specialized financing where real estate property is pledged as collateral. They are much different from a traditional lender, such as a bank, which first and foremost bases its decisions on a borrower’s credit history and income when deciding whether to approve a loan. 

Hard money lenders focus primarily on the property’s value and potential. This focus on asset value, not creditworthiness, makes hard money loan lenders quite applicable in real estate ventures where time is of the essence to maximize new investment opportunities. 

Pros & Cons of Hard Money Loans 

Hard money loans are one of the most popular financing options for real estate investors because they provide quick turnaround on projects where traditional funding may not be possible. The table below identifies all the pros and cons related to hard money loans that investors should be aware of when considering this financing option:

How to Know if You Need a Hard Money Lender

Knowing whether a hard money lender is the proper fit for your real estate financing involves many considerations. Most hard money loans are designed for unique situations or circumstances that traditional funding just can’t handle. The following is a closer look at situations where you should consider a hard money lender:

• Quick funds are needed: You require quick financing to secure a real estate deal before potential competitors.
• Credit issues: Traditional financing isn’t an option due to credit issues or unconventional income that doesn’t satisfy typical bank requirements.
• Short-term financing: For projects like fix-and-flips or bridge loans, you need short-term financing.
• Investment opportunities: You encounter a real estate investment opportunity that requires immediate action that conventional funding sources cannot meet.
• Renovation projects: You need financing for purchasing properties that require significant repairs that traditional banks may not finance because of their condition.

How to Choose the Best Hard Money Lenders

The right lender can make or break your investment. Keeping these factors in mind will put you in a better position to know when you really need a hard money lender and how to be sure you are selecting an appropriate one for your specific financial and project goals. This evaluation allows you to work with the best lender possible for the most optimal terms possible for your investment strategy. Here is how to choose the right hard money lender:

1. Evaluate lender reputation: Research the lender’s track record, customer reviews, and industry reputation to ensure they are reliable and fair.
2. Understand the terms: Fully comprehend all loan terms, including interest rates, fees, loan-to-value ratio, and repayment schedule.
3. Assess the speed of funding: Since time is often critical, assess how quickly the lender can process and fund the loan.
4. Professional advice: Consider consulting with a financial advisor or real estate professional to help navigate the process and select the best lender for your specific needs.
5. Compare multiple offers: Don’t settle for the first lender you meet. Compare different offers to find the best terms and rates.
6. Check for transparency: Ensure the lender is transparent about all costs, fees, and any penalties associated with the loans. 

Methodology: How I Chose the Best Hard Money Lenders 

To find the best hard money lenders of 2024, I devised a rigorous methodology focused on the most critical factors to create an unbiased review. I reviewed various lenders against multiple key factors to ensure I viewed them through the lens of what would be most important to a real estate investor. The detailed analysis then isolated lenders that support good, solid financial solutions and blend well with various investment strategies and goals. 

Here are the key factors considered:

• Interest rates and loan terms: Assessed the competitiveness and flexibility of each lender’s offerings.
• Speed of loan processing and funding: Evaluated how quickly each lender processes and disburses funds, a crucial factor for time-sensitive investments.
• Lender reputation: Examined customer reviews and industry feedback to gauge each lender’s reliability and overall customer satisfaction
• Transparency: Focused on how openly each lender communicates fee structures and loan conditions, ensuring no hidden costs exist.
• Geographical coverage: Considered the availability of services across different regions to accommodate investors in various locations
• Target audience suitability: Analyzed which types of real estate investors (e.g., fix-and-flippers, buy-and-hold investors, and commercial developers) each lender best caters to based on their product offerings and specialty areas

Frequently Asked Questions (FAQs)

What are the typical interest rates for hard money loans?

How quickly can I receive funding from a hard money loan?

What are the typical financing terms of a hard money loan?

Your Take

Investors should look for the best hard money loans that fit the needs of your project and financial goals. Consider a lender that offers flexible terms of the deal, transparent structures of the fees charged to the investor, and competitive rates of interest. Additionally, the lender should have an impressive, reputable status in the industry, characterized by positive testimonials from clients, with reliable transactions that give value to the money. The right hard money lender will do more than just finance an investment. They will also support the investor’s overall strategy and want to contribute to their success.

The post The Best Hard Money Lenders of 2024 (Interest Rates, Fees & More) appeared first on The Close.

1. Real Estate Agent

• Average salary: $90,506 per year
• Required skills: Communication, negotiation, persuasion, and market knowledge

Whenever you ask, “What can you do with a real estate license?” the most common career path is to become a real estate agent. You can do this full-time or as a part-time real estate agent. In this role, you’ll represent buyers and sellers as they navigate the real estate transaction process. 

• Buyer’s Agent: Accompany buyers on showings and provide counsel and advice through the property search, selection, negotiation, and contract process. You’ll also connect homebuyers with the necessary area professionals (like mortgage brokers, inspectors, appraisers, and more) to help them reach the finish line.
• Seller’s Agent: Offer counsel to sellers regarding the estimated value of their homes. You’ll also provide a listing strategy, including price, marketing, open houses, etc., and you’ll help them negotiate in the offer process—ultimately getting them at the closing table.

The requirements to become a real estate agent vary per state. Some states only require 40 hours of prelicensing education, while some need more than a hundred hours. Still unsure whether you want to help clients close deals? Read our article on the pros and cons of being a real estate agent.

2. Real Estate Managing Broker

• Average salary: $104,418 per year
• Required skills: Leadership, management, mentoring, knowledge of real estate laws and regulations

Real estate managing brokers wear many hats, but generally, they’re responsible for managing real estate agents. In this role, managing brokers advise agents and provide them with mentorship and professional development. Depending on the structure of a brokerage, they’re also responsible for various elements of office management.

To become a real estate broker, you must complete additional education requirements set by your state in addition to your prelicensing education. You’ll also need some experience and pass the broker’s licensing exam. Do you have what it takes to be a real estate managing broker? Do you want a leadership role at a brokerage? Read our article on the difference between an agent and a broker.

3. Real Estate Instructor

• Average salary: $63,144 per year
• Required skills: Communication, passion for teaching, in-depth knowledge of real estate principles and practices

Besides being an agent or broker, one of the jobs with a real estate license is as an instructor. Real estate instructors teach aspiring and seasoned agents prelicensing and continuing education courses. They cover real estate laws, transaction processes, and ethics to help students obtain and maintain their licenses. If you’re passionate about teaching and want to impart knowledge to aspiring real estate professionals, this job is for you.

Instructors use various teaching methods, including classroom lectures and interactive online discussions. Additionally, instructors must stay updated on real estate laws and market trends and quickly adapt to new real estate developments.

4. Real Estate Analyst

• Average salary: $86,818 per year
• Required skills: Market research, analytical, and data analysis

One technical job with a real estate license is as an analyst. Real estate analysts examine trends and interpret data to provide insights and recommendations for property investments, developments, and other transactions. In addition to observing market trends, they analyze property values and evaluate potential risks. They use all their findings to help clients make informed decisions about leasing, buying, selling, or developing properties.

If you love finance and economics and want to work as a real estate analyst, you must gain relevant experience in real estate firms or financial institutions. Staying informed about market trends and the economic climate would be best. 

5. Real Estate Writer

• Average salary: $81,001 per year
• Required skills: Excellent research, writing, search engine optimization (SEO) and keywords, and creativity

What can you do with a realtor license, you ask? Writing might be the right path if you want to create informative real estate pieces. Real estate writers produce many types of content, such as articles, market reports, strategy guides, copy, and property listing descriptions. If you want to be a real estate writer, prepare to write for various audiences, including home buyers, sellers, and other industry professionals. Some real estate writers can work freelance for brokerages, media organizations, or online real estate publications (like The Close!).

To succeed in this role, you must understand real estate terms and market trends to provide accurate information. Writers must also be adept at SEO techniques to boost their content’s readership and reach a broader audience.

6. Property Manager

• Average salary: $59,796 per year
• Required skills: Communication, financial management, problem-solving, and knowledge of landlord-tenant laws

Property managers handle the daily operations of various properties for owners. You can work for landlords, investors, or building owners by screening tenants, preparing lease agreements, showing properties, and collecting rent. As a property manager, you’ll ensure properties are well-maintained, meet safety standards, and address tenant concerns.

Property managers are also in charge of the financial aspects of these properties. They create budgets, set rental fees, monitor expenses, and report finances to owners. To become a property manager, you must have relevant experience in property management assistance or tenant relations. Some states require certifications like Certified Property Manager, Certified Apartment Leasing Professional, and Master Property Manager will boost your credentials.

For property managers seeking an efficient tool to help manage properties’ finances seamlessly, try TenantCloud. It provides features like online rent collection, tenant screening, and maintenance tracking.

7. Real Estate Coach

• Average salary: $40,970 per year
• Required skills: Leadership, communication, coaching, mentoring, motivational, and industry knowledge

Some other jobs that require a real estate license are as coaches and trainers. Real estate coaches mentor industry professionals to enhance their skills and grow their businesses. Coaches empower agents, brokers, and other real estate professionals by boosting their confidence and promoting career growth. They pinpoint areas where their clients need to improve, conduct one-on-one sessions and workshops, and give continuous feedback. 

Want to coach your fellow industry members? Start by developing your communication skills, managing clients, and producing training materials. Then, work towards marketing yourself, coaching a few clients, and staying updated on training techniques.

Once you work as a real estate coach, you can also be one of the best motivational speakers at industry events. Sharing your insights and success stories can inspire others and establish you as a thought leader in the industry. You may also write a book and create courses to reach a bigger audience and expand your network.

8. Real Estate Attorney

• Average salary: $140,845 per year
• Required skills: Real estate law expertise, legal research, analytical, attention to detail, logical reasoning, and problem-solving

A real estate lawyer manages the legal aspects of property transactions, helping clients navigate the complexities of leasing, buying, and selling. They prepare papers like leasing agreements, eviction notices, title documents, and mortgage contracts and perform title searches to confirm property ownership. Real estate attorneys address all legal concerns while representing tenants, buyers, and sellers.

If you want to be a real estate attorney, you’ll need a bachelor’s degree in pre-law, complete law school and earn a Juris Doctor degree, then pass your state’s bar exam. Lawyers can skip prelicensing education in some states to earn a real estate license. 

9. Home Inspector

• Average salary: $60,383 per year
• Required skills: Knowledge of building codes and attention to detail

Home inspectors assess properties to ensure they meet safety standards before the home sells. They thoroughly inspect a home’s structural elements, electrical systems, plumbing, and roofing, as well as heating, ventilation, and air conditioning (HVAC) systems. Home inspectors are detail-oriented as they identify faulty wiring, water leaks, or structural damages.

To become a home inspector, search for your state’s specific requirements. Typically, these include completing certain training hours and passing a certification exam. Additionally, joining organizations like the International Association of Certified Home Inspectors can offer more networking opportunities and continuing education.

10. Real Estate Investor

• Average salary: $86,796 per year
• Required skills: Market research and risk assessment

Real estate investors buy and sell properties to generate income. The process typically involves buying properties to rent out or renovating homes to sell at a higher price (aka flipping houses). Some investors also purchase land for future development. It takes so much courage to be a real estate investor. While the risk is very high, the potential rewards can be as significant. Always be prepared for market fluctuations, unexpected expenses, and property vacancies.

You may think you don’t need a real estate license to be an investor. While that may technically be true, you should still get a license to make real money doing it. When you’re an investor with a real estate license, you can represent yourself in the sale of your properties, saving you upward of 6% (the typical commission for residential real estate sales). In addition, you can also represent yourself in the purchase of real estate, allowing you to either pocket the commission or negotiate it off the top of the sales price.

Want to start learning about real estate investing? Read Kiavi’s insightful eBook on Flipping Houses 101:

11. Real Estate Appraiser

• Average salary: $61,060 per year
• Required skills: Market research, analytical, and knowledge of appraisal techniques

Real estate appraisers evaluate properties and assess their values before they are insured, mortgaged, or sold. They look into all variables that may impact a property’s value, such as past homeownership, renovations, and developments. If you’re considering working as an appraiser, you must know about local market trends and conditions to succeed. In addition to appraising properties, appraisers also update public records. They note any changes that may impact properties’ values.

To become an appraiser, you must complete real estate appraiser courses, work as a trainee, find a mentor to supervise you, and then pass your state’s appraiser licensing exam.

12. Real Estate Assistant

• Average salary: $45,545 per year
• Required skills: Administrative, communication, and organizational

Another answer to your “What can you do with a real estate license” question is to assist agents and brokers. Real estate assistants help manage the day-to-day operations of brokerages. They receive visitors at a brokerage, respond to emails, answer the phone, schedule appointments, and organize paperwork. If you want to work as an assistant for an agent or broker, your responsibilities will include coordinating property showings, handling client inquiries, and creating property listings. You’ll nail this role if you’re good at juggling multiple responsibilities.

13. Real Estate Content Creator

• Average salary: $47,000-$90,000 per year
• Required skills: Creativity, storytelling, social media, and video editing

Working as a content creator can be fun if you love creating various types of content and actively engaging with your audience. As a real estate content creator, you’ll produce high-quality social media content to attract new clients and retain existing ones. You’ll share your real estate insights, property listings, virtual house tours, and other relevant topics on your Instagram, Facebook, TikTok, and YouTube.

You can start by gathering social media post ideas for your platforms. Learn about the latest digital marketing strategies and analytics tools to know which types of content work best for your target audience. You can also partner with other real estate brands, software, or platforms and promote them on your page to earn extra income.

FAQs: What Can You Do With a Real Estate License

What skills are necessary to succeed in the real estate industry?

Is it possible to have side hustles in real estate?

What are the challenges of a career in real estate?

Which states do real estate agents make the most money in?

Bringing It All Together

You’re still probably asking, “What can I do with my real estate license?” Choosing the right real estate career takes many considerations. Assessing your skills, interests, and long-term goals is essential in finding a path that suits you best. I’m sure there are more jobs you can get with a real estate license besides the ones listed above. What did I miss? Please share them in the comments below!

The post 13 Jobs You Can Get With a Real Estate License appeared first on The Close.

In this article, we’ll discuss the common requirements of any business plan, such as budget and financial projections, as well as required capital. We will also review less common, yet equally important, items like investment strategies, market analysis, property acquisition, and time commitment. 

Parts to a Real Estate Investment Business Plan

1. Investment Strategy
2. Market Analysis
3. Property Acquisition
4. Time Commitment
5. Budget and Financial Projections
6. Funding Requirements
7. Exit Strategy

Investment Strategy

Whether you’re investing for cash-flow, short-term rental, fix and flip, speculation, or wholesale, your real estate investment business plan should begin with the strategy that you wish to pursue.

Each investment strategy poses its own benefits and risks. Upfront investment, time commitments, return, and difficulty should all be considered when you are selecting your real estate investment strategy.

Strategy	Upfront Investment	Time Commitment	Annual Return	Long-term Return	Difficulty
Wholesale	$		$$$	N/A
Cash-Flow	$$		$	$$$
Short-Term Rental	$$$		$$	$$
Fix and Flip	$$$$		$$$$	N/A
Speculation	$$$$$		N/A	$$$$

Reviewing the chart above, you can see that cash-flow investing is a great option if you are looking for an easier strategy that will allow you to retire in 20 years by owning properties that are free and clear. However, cash-flow investing may not be the best strategy if you want to generate immediate income or you wish to make real estate investing a full-time career.

Wholesale real estate investing is a good choice if you’re looking for short-term opportunities to break into the investing industry by leveraging your existing skills as an agent. Short-term rentals and fix-and-flip projects are much more labor-intensive, but they’ll both pay off much sooner than speculative deals. 

Market Analysis

The next part of your real estate investment plan is to determine the location or locations you would like to invest in. Then you must determine if the market conditions in those locations are right for your strategy. One of the biggest mistakes real estate investors make is using a strategy that doesn’t fit  with the market conditions or area.

Success in real estate investing is less often dependent upon the skills or talent of the investor and more often the timing of the market. The saying “a rising tide floats all boats” comes to mind. The following market indicators can give you insight on the direction the real estate market is going.

Property Acquisition

As a real estate professional, you are likely presented with investment opportunities every day. What’s different about becoming a serious real estate investor is having a business plan that demonstrates how you will identify, vet, and acquire properties. Therefore, your business plan should reflect how you plan to identify, vet, and acquire properties.

Many novice investors think they can just contact a local agent and select from the properties that are available in the MLS. The cold truth is that the best deals are found off-market or outside of the MLS. This means that you may need to create a plan for marketing to homeowners in foreclosure or divorce and bankruptcy attorneys. 

Once you have a steady stream of investment opportunities coming your way, you will also need a process for quickly evaluating whether each property fits your investment strategy. Fortunately, we have created guides to help you analyze both fix-and-flip and cash-flow real estate investments.

Download Our Property Condition Risk Assessment Worksheet

Time Commitment

Another consideration for a real estate investment business plan is the time you have available to contribute to investing. Each of the investment strategies above will require some time commitment from you. If you are limited on time, you may need to hire someone to manage your investments.

If you are doing fix and flips and have a lot of free time to manage contractors, then you may be the best person to manage the project. However, if you are buying a cash-flow property in another state, it is nice to have a property manager in the area to find tenants, handle emergencies, and collect rents.

If you are planning on hiring people to help you with your investments, you will need to remember to add the associated costs to your budget and financial projections.

Budget and Financial Projections

The next part of your real estate investment business plan is to prepare an estimate of the fixed and variable expenses you may encounter from your investment activities, as well as a projection of potential revenues.

Expenses

When estimating expenses, make sure to include expenses related to the property—such as taxes and utilities—and expenses that are related to managing a real estate investment business, like employees, software, and property management services.

Revenue

Then, estimate your revenue. Revenues will be very different depending on the type of investing strategy you are using. If you are a wholesale investor, you may buy and resell multiple properties throughout the year, producing substantial revenue. If you are cash-flow investing, you will have consistent revenues from the rental income. And speculative land investing may not produce any revenue until it is sold—and that may take years! 

Financial Projection

When you combine your expenses and revenue projections, you will be able to estimate your financial projection. The financial projection is a five- to 30-year estimate of your budget that will also take into consideration other important items such as appreciation, principal reduction, and depreciation.

The overall goal with your budget and financial projections is to accurately estimate the capital and funding needed to execute your real estate investment business plan.

Funding Requirement

Funding requirements are a combination of the cash, financing, hard money or private financing you will need to execute your real estate investment business plan. Once you complete your financial projections, you can easily estimate the total investment needed.

A great benefit of real estate investing over other types of investing is the ability to leverage. In many cases you can finance 60% to 80% of the acquisition price, and some hard money lenders will finance the repairs too.

In either case, you want to ensure you have plenty of money on hand to weather the ups and downs until you are ready to exit. Most business plans estimate an additional cash-on-hand figure of 20% of the agreed-upon purchase price. 

Exit Strategy

Any good real estate investment business plan includes an exit strategy. Sure, you may say that you are going to hold your properties forever, but the truth is, you still need to have the ability to exit if your plans change.

An exit strategy is not a requirement to sell; it is the point in your investment plan that allows you the option to exit if you decide to. Experienced investors know that you can only really control when you buy; due to unforeseen circumstances, you can’t always control when you must sell. 

To identify your exit strategy, review your financial projections and identify points where your balance sheet reflects low liabilities alongside high cash and equity. These are good exit points. For fix and flips and wholesale, the exit strategy may be months or even weeks for each property; for speculation and cash-flow it may take five to 10 years.

The Bottom Line

Real estate investing can be fun and very profitable. To ensure your success with real estate investing, start with a well-thought-out plan. As they say: “Failing to plan is planning to fail!”

If you have great real estate investment advice, please share in the comments below.

The post 7 Critical Parts of Every Real Estate Investment Business Plan appeared first on The Close.

Over the past 27 years, I have invested in hundreds of properties. And I’ve helped just as many people with their first real estate investment. While it can seem daunting, don’t worry. I’ll walk you through my proven process for flipping houses—from doing market analysis all the way through financing, creating a budget, renovating, marketing, and selling your property. Let’s get started.

How to Flip a House: 10 Steps to Flipping Houses the Right Way

Real estate investing has been a passion of mine since I was a child. I learned how to start flipping houses the old-fashioned way—through plenty of trial and error. Since then, I have spent much of my real estate career coaching real estate agents and investors and advising them how to find, buy, fix, and resell real estate the right way.

While there are many different approaches to flipping houses, I prefer the simple one. My guide, which explains how to start flipping houses, is just that—a simple approach to finding and flipping real estate. It has served me well in my career, and I hope it works for you too.

The most common question I get regarding flipping houses is “Is the market right for fix and flipping?” or “Is my market right for flipping houses?” That’s why the first step to any successful flip is determining the direction of your local market.

1. Determine the Direction of the Market

It might sound like a cliche, but the market is always right for flipping houses. Yes, really. After all, you shouldn’t be worried about where your market is right now. Instead, your primary concern should be the direction the market is going and the pace at which inventory is selling.

Seller’s Market: Home Prices Are Rising

Buyer’s Market: Home Prices Are in Decline

How Smart Investors are Pivoting to Beat the 2023 Market 

Many people are saying this market offers nothing but doom and gloom for house flippers. They recommend changing strategies to try to beat it. With a perfect storm of soaring interest rates and softening prices, I don’t blame them. But smart investors who have been in the game for decades see it differently. How are they changing their strategy to beat this market? The answer might surprise you. They’re not.

In challenging markets the best investors don’t pivot. They double down on what works: The BRRRR method – the building blocks of a successful flip in any market. So If you want to create value in your local housing market this year, check out Kiavi’s free BRRR method guide below. It includes everything you need to know for a successful flip including tips for securing the best financing and the hottest new home rehab trends for 2023.

2. Find Fix & Flip Opportunities

Flipping houses involves buying dilapidated or outdated properties, remodeling them, and selling them for a profit. Fix-and-flip investors must have the skills to find undervalued real estate opportunities, evaluate them, and manage contractors to ensure their “flips” are completed on time and within budget.

Finding properties to fix and flip isn’t as easy today as it once was. For example, the properties listed on your MLS probably won’t have margins large enough to make a hefty profit—or any profit at all.

The secret to finding fix-and-flip properties today is to identify off-market homes and homeowners who are highly motivated to sell. These may be homeowners who are in financial distress due to circumstances beyond their control, such as foreclosure, divorce, job loss, or bankruptcy.

Once identified, savvy investors approach them with an offer to take the burden of the property off their shoulders. Some of these properties are distressed, neglected, or abandoned, so an “as-is” quick closing is very attractive to the potential seller.

Finding motivated sellers isn’t easy, which is why I offer a complete course on finding motivated sellers and off-market listings at The Close Pro called Survive & Thrive With Sean Moudry.

Visit The Close Pro

3. Evaluate Fix & Flip Opportunities

Once you have found a good fix-and-flip opportunity, you’ll need to evaluate the property to make sure you know what you are getting into before you buy it. It’s at this juncture that many new fix and flippers cut corners and make career-ending mistakes.

To prevent that from happening to you, check out my fix and flip risk assessment process and learn how to evaluate fix and flip projects like a pro in my recent articles. These should help to ensure you don’t make some of the most common mistakes even experienced house flippers sometimes make.

4. Establish the Right Offer Price

“You make money when you buy the property, not when you sell it.”

In other words, the price you pay for the property will determine the profit you will make when you sell. If you overpay, chances are you won’t make any profit at all. This error is more common than you might think.

Anyone who has been investing for a long time has made the mistake of overpaying for a property. I know I have, which is why I came up with my Fix-and-Flip Risk Assessment —a tool that will force you to slow down and focus so you won’t overlook property details that may cost you big money later.

My worksheet also creates a numeric risk score to help you narrow your offer price range to avoid overpaying for a property.

5. Negotiate the Price & Terms

Once you have determined your offer price on your fix-and-flip opportunity, you will need to negotiate the price and terms with the seller. For some people, negotiations come naturally, and for others, it may take a little practice.

I have found that the best way to negotiate the best price for fix and flips is to meet with the seller face to face and share your concerns about the property openly and honestly. Explain how much work it will take to get their property “resell ready” and emphasize that your profit is not guaranteed.

Next, remind them why your offer is the best one. Accepting your as-is offer that closes quickly will help the seller move on with their lives painlessly.

Lastly, bring the completed contract with you. I can’t tell you how many times I have come to verbal terms with a seller, only to have them get cold feet a few hours later. As soon as they agree to the terms, make the adjustments to your contract and ask them to sign the contract immediately to secure your deal.

6. Find the Right Financing

Fix-and-flip financing is different from other types of real estate financing. When you’re financing a home to live in, the lender puts most of the qualifications on the borrower’s ability to pay the mortgage back over 30 years.

We use “hard money” lending when flipping houses—which means short-term loans generally paid back within six to 12 months. This quick turnaround time means that hard money lenders will take a closer look at the property than at the borrower’s finances.

With the higher risk involved for the lender, they’ll charge higher upfront fees and interest rates. For a complete breakdown of how to choose a hard money lender and my top picks for fix-and-flip lenders, read my hard money lenders guide.

Cash Is King & Queen When Flipping Houses

Before you even consider making an offer on a potential fix-and-flip opportunity, you need to ensure that you (as the buyer) or your client has access to enough cash to close the deal. If you don’t have cash, Kiavi is a good option. They offer competitive rates, fund quickly, and work with brand-new investors, which not all hard money lenders do.

7. Create Your Renovation Budget

It may sound counter-intuitive to create your budget after you’ve made an offer, but the truth is, you often won’t have time or access to the property to complete an accurate budget beforehand.

Keep in mind that you haven’t closed on the property yet, and there is still time to back out of the deal, though you’ll risk losing your earnest money. You can also try to renegotiate if you find that your initial estimates fall short of the actual rehab budget.

Many project management software providers offer outstanding estimating software. However, I have found a simple spreadsheet like this one to suffice for most light remodel flippers.

Just remember “garbage in … garbage out,” meaning if your initial estimates are wrong, the spreadsheet will also be incorrect. If you are brand-new to remodeling and flipping houses, I highly recommend using a professional contractor to help you develop estimates for the work that needs to be completed.

8. Close on the Property

The big day has come, but don’t get too excited. Before you go into the closing and sign your name to your first flip, take a minute to review all the information you’ve gathered so far from each of the steps outlined here.

Did you investigate everything thoroughly? Did you get all your estimates back? Which issues, to the best of your knowledge, may come back and bite you later? This moment is your last opportunity to take a pause or walk away completely. Don’t take this step lightly.

Once you feel confident that you have your questions answered and the issues you are aware of can be managed if and when they arise, walk into the office and confidently sign the paperwork to buy your first flip.

9. Hire Contractors & Remodel the Property

Now the real work begins! It’s time to remodel the house.

One of the biggest mistakes new fix and flippers make is to try to do all the work themselves. Even if you are a professional contractor and planning on this course of action, you will still want (and possibly need) to secure quotes from other contractors. Lenders will require bids from several contractors.

It’s unlikely that you’ll be able to pay yourself for remodeling the property until after it sells, so you’ll need income from another job. But working on your flip in the evenings and on weekends isn’t going to cut it. You’ll need to get the home remodeling finished quickly.

One rule of thumb is to be in and out in less than five weeks—meaning from the day of closing to the day you put the home back on the market. Here’s why timing is so important: The longer you hold a property, the larger your finance costs.

The other reason is that time is money. If I spend a large chunk of my week renovating this property, I am potentially missing out on other fix-and-flip opportunities. Some of those opportunities will offer better margins, and as a result, will be snapped up quickly.

So get multiple written bids from contractors and plan on using them to finish the project faster and keep you focused on finding the next project. Trust me, the money spent on contractors will offer you the best return on investment (ROI) over the long run.

10. Market & Sell Your Fix & Flip for a Profit

Another common misstep fix and flippers make is cutting corners on marketing the home once it is completed. I know that after weeks of hard work, you’re probably excited to get your masterpiece on the market. But you can’t cut corners here. Any realtor worth their salt will tell you: Marketing and selling homes is hard work.

Before placing the for sale sign in the yard, you need to complete the full punch list and professionally clean the house. Selling a home is about getting a buyer excited about living in the home. If they see unfinished details, construction debris, or dusty and dirty windows, they’ll think you have cut corners in areas they cannot see.

Next, you will want to stage the property. It is a well-known fact that staged properties sell faster and for more money than vacant properties. A professional staging company charges between $1,000 and $4,000 to stage an empty home. If you don’t have room in your budget for staging, consider virtual staging.

Finally, if you’re not a licensed real estate agent, hire one. Many fix and flippers have their real estate agent license so that they don’t have to pay a commission each time they sell a home.

Hire an experienced agent who knows how to market your fix and flip and drive buyers to your door—and in some cases, multiple offers too. They’re worth their weight in gold. Having another real estate pro who can handle your sale for you will give you time to focus on your next fix-and-flip opportunity—without worrying about managing the details of a real estate transaction.

Bottom Line

Like Mike Tyson said, “Everyone has a plan until they get punched in the mouth.” Mike was right, and his advice applies to flipping houses. No plan is perfect, but I’m sure he would agree that some planning is far better than no planning at all.

So, before you get too excited and jump into your first fix and flip, take some time to review these steps and my fix and flip risk assessment process and worksheet. Otherwise, you are sure to get punched in the face by an otherwise avoidable mistake.

The post Fix & Flip 101: 10 Steps to Flipping Houses (the Right Way) appeared first on The Close.

In this article, I will walk you through my Property Evaluation Process that I use to evaluate my fix-and-flip projects and determine the right offer price using my Fix-and-Flip Property Risk Worksheet. Make a copy of the worksheet, then read on to learn how to thoroughly evaluate your next fix-and-flip project.

Tools You’ll Need to Properly Evaluate a Fix & Flip

Be prepared to get dirty when you’re evaluating your fix and flip. Bring some old clothes or coveralls so you can get into the crawlspace and attic. Don’t forget some water on hot days because this could take an hour or two. Here are some essential and handy tools I suggest you bring when evaluating a fix and flip:

• Your cell phone and charger to take videos and photos
• A ladder to look on the roof (I don’t suggest getting onto the roof)
• A measuring tape to measure the rooms, cabinets, and yard
• An outlet meter to check the outlets and ground fault circuit interrupter (GFCI) circuits
• A moisture meter
• A flashlight and extra batteries
• An awl or sharp screwdriver to poke into wood trim, baseboards, and subfloors to check for rotting wood and moisture damage
• A large level and some marbles to check the floors and counters to see if they are plumb
• For older properties, test for lead paint with low-cost, lead-based paint test kits

My Fix & Flip Property Evaluation Process

I developed my Property Evaluation Process to ensure that no part of the property would be overlooked. Using the Fix-and-Flip Property Risk Worksheet, you will start with the interior and work your way throughout the house. Then, once you finish assessing the interior, you’ll move on to the exterior.

For detailed instructions on how to use my risk worksheet, refer to our recent article Fix & Flip Risk Assessment: How to Make the Right Offer. As you evaluate the property room by room, you will rank the condition of each area or item on the worksheet based on the cost or amount of work the area or item will need.

1. Evaluating a Home’s Interior

The Living Room

Start with the interior. Walk into the living room and take a long slow sniff: Do you smell any odors from pets, mildew, mold, or smoke? Believe it or not, strong odors can be costly to fix.

Take a look at the floors. Are there stains or tears in the carpets? Will they need to be replaced, or can you recondition them? Are the floors level, sagging, or soft? Each of these issues can be a sign of water or structural damage.

How are the walls? Are they damaged or need painting? Check the ceiling; is it a popcorn texture? Could it be asbestos?

Mark all the potential risks on your Fix-and-Flip Property Risk Worksheet.

The Kitchen

Walk into the kitchen. Are there tears, stains, or cracks in the tile or linoleum? Do the floors need to be replaced?

Check under the cabinets. Is there visible water damage? Can the cabinets and countertops be salvaged, or is it time to upgrade them? How about the kitchen appliances? Are they off-color or at the end of their lifespan?

Use the outlet meter to check the outlets to see if they are working and on a GFCI. This is a crucial step because you may be required to add GFCI outlets when you remodel.

Plan on spending most of your budget in the kitchen. It is the most expensive room in a house to remodel. A good appliance package alone can run upward of $4,000, and cabinets and countertops can cost an additional $10,000 to $20,000. But if done right, the kitchen can also give you the most return for your buck.

List the needed repairs on your Fix-and-Flip Property Risk Worksheet and move to the bathrooms.

The Bathrooms

The second-most expensive rooms to remodel are the bathrooms—especially the en-suite bathroom. Like the kitchen, evaluate the plumbing under the cabinets, behind the throne, and in the shower or tub.

If there is a jetted tub, fill it with water and run the jets. Check for leaks and black mold coming out of the jets.

Check the linoleum or tile for cracks, stains, and tears. Place your foot near the base of the throne and press down. Does the floor feel soft? Does the toilet wobble? These may be indicators of water damage in the subfloor, which will require an expensive repair. Repeat this test on the floor near the showers and bathtubs. Lastly, check for the bathroom outlets for GFCI circuits.

The Primary Bedroom

Besides the kitchen, the primary bedroom is the main focal point of a home for most buyers. So it must be in tip-top shape after the remodel.

Don’t get too hung up on the current condition of the bedrooms because you’re probably going to replace all the flooring and paint the walls anyway. You are mainly checking the size and shape of the room. Is it large enough for a king-sized bed, end tables, and a dresser? Does it get decent light, or do you need to add a window or skylight?

Many buyers are looking for primary bedrooms with en-suite bathrooms. Is there a bathroom attached or room to add one? Is the closet a walk-in or large enough for the clothes of two people? If not, is there room to add one?

Note any missing or broken doors, door hardware, and light fixtures on the Fix-and-Flip Property Risk Worksheet.

The Secondary Bedrooms

The condition and size of the secondary bedrooms are less critical than the primary bedroom, but you shouldn’t overlook them. Keep in mind that a three-bedroom home appeals to a larger buyer pool than a two-bedroom, so if the property has less than three bedrooms, you may want to consider the cost of adding another bedroom if the home’s floor plan permits.

Additionally, many people work from home today and are looking for homes with quiet home office spaces.

2. Evaluating a Home’s Exterior

Impatience and excitement can lead you to overlook important details when evaluating your potential fix-and-flip deal. Take the time to inspect the entire exterior and yard thoroughly, even if the interior is in great shape. In my haste, I’ve missed structural cracks that would have been easily spotted had I taken the time to walk around the entire property with a critical eye.

While inspecting the exterior, look for cracks and sagging windows and doors. These are signs of settling in the foundation and could be signs of a much more significant and costly problem.

If you brought a ladder, take a peek at the roof. Are there missing, damaged, or curled roofing shingles? Are the gutters and downspouts attached? Do you see any water damage to the fascia and siding?

How are the siding and paint? Flaking paint and damaged siding will need to be repaired and painted. Will the current paint color attract the attention of a modern buyer?

Check the windows and exterior doors. Are they operational and energy-efficient? New windows and doors can dramatically change a home.

Evaluate the Yard, Driveway & Lot

Are the driveway and patio unlevel or cracked? How is the size and shape of the lot? Is it level and graded properly?

Walk the entire yard. Does it need a new sprinkler and sod? Are there any dead trees or bushes that will need to be removed or replaced?

Are there obstructed views, noisy roads, nearby utilities, or a lack of privacy that may affect the resale value?

Is there trash or junk that may be left behind? My experience has been that no matter the agreement, homes and yards full of trash and debris are still full of trash and debris after the occupant moves out.

Write all your concerns on the worksheet.

3. Evaluating a Home’s Mechanical Systems

You must always inspect the basic mechanical systems, including the heating, cooling, plumbing, and electrical systems. Some properties may also have swimming pools, hot tubs, fireplaces, wells, and septic systems. Make sure to inspect all of them thoroughly.

Keep in mind that when you’re buying a property to flip, you’re most likely making an as-is offer to a seller who doesn’t have the desire or the ability to make repairs. To get top dollar for your fix and flip, you need to convince buyers that you didn’t just make the place look nice—you also addressed mechanical and structural issues.

When possible, have professionals inspect the property’s mechanicals, sewer line, and septic system for their functionality and lifespan when you’re flipping homes. While this may cost you a few hundred dollars today, it may save you thousands down the road.

In some instances, as in a foreclosure, you won’t have the time or opportunity to have these items inspected by a professional. Therefore, you will have to make some educated assumptions about their age and functionality and adjust your offer price for the additional risk of buying the home without in-depth knowledge of their condition.

When flipping homes, always err on the side of caution. For example, if the furnace and water heater are more than 20 years old, assume you will need to replace them to sell a safe and reliable property to the new buyer.

Evaluate each mechanical item and score them on your worksheet.

4. Evaluating Other Factors

Once you’ve completed your evaluation of the physical condition of the property, don’t forget to look into the zoning, flood zones, homeowner associations (HOAs), property taxes, and local sales tax. When overlooked, these items can cause you a lot of headaches or eat up all your profits.

Many investors who are new to flipping homes make the mistake of buying properties to rent them as short-term rentals. Unfortunately, many investors are unaware of local ordinances or HOA rules on short-term rentals—or simply ignore them—only to find out later that they’re prohibited from vacation renting the home.

On the other hand, savvy investors understand that by overcoming obstacles, they can take a low-value property and turn it into massive profits. Knowing how various factors can impact a property’s value can help you avoid big mistakes and turn other people’s lemons into lemonade.

Bottom Line

My approach to flipping homes takes the emotion out of the process, forcing you to slow down and think carefully, so you can focus on getting the best ROI for yourself or your investor clients. Taking a cautious approach to flipping homes will prevent you from overpaying, or worse—buying a property with extensive damage you may have overlooked. My Fix-and-Flip Evaluation Process and Fix-and-Flip Property Risk Worksheet have prevented me from making costly mistakes, and I hope these serve you just as well.

The post How to Evaluate Fix & Flip Houses Like a Pro (+ Risk Worksheet) appeared first on The Close.