Walnut Street Finance Blog

Your Handy Fix and Flip Checklist Before Getting a Hard Money Loan

Posted by Walnut Street Finance Team on Jan 16, 2020 9:45:00 AM

Let’s say you’ve been driving around the neighborhood and you see a couple of diamonds in the rough with for sale signs out front. Your inner DIYer’s interest is piqued and you think “wow, that house could be gorgeous if only I could get my hands on it.” Well, the market doesn’t wait for anyone, so you might need to strike when the iron is hot. But are you ready?

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We want you to be successful. So, when considering a fix and flip project, there are a few things you should know, particularly if you are looking to take out a hard money loan to help finance it.

✅ Buy 

First, consider the property itself. What are the characteristics? There are key things you should have at the ready for qualifying for a loan:

  1. Property address
  2. Purchase amount
  3. Photos of the property inside and out
  4. The lot size and description

In addition to the property itself, have an understanding of the neighborhood and location, which will help in evaluating the current value and flip value of your project.

Fix

Next, what are your plans for the property? Are you doing a major rehab and adding square footage and rooms? Or is it more of a cosmetic upgrade? You should think through:

  1. Plans for rehab and construction
  2. Cost for rehab and repairs

The vision you have for fixing the property will allow you to figure out the value of the property when you are ready to sell it.

Sell

Sure, that flop can be flipped into a beauty, but to be a money maker it has to sell at the right price. After Repair Value (ARV) is essential to figuring out how you’ll benefit from your real estate investment. It can literally make or break a fix and flip project.

The calculation is pretty simple:

Current Property Value + Value Added Resulting from Repairs = After Repair Value

Identify Comp Properties

The next step you should take is investigating other properties in the area of your project. Find properties that have similar features to your property - both as-is and after it is fixed up.

Factors to consider when looking for comparable properties:

  • In the same neighborhood
  • Approximately the same size and number of rooms
  • Newly sold, the more recent the better

The comps you find for the property as-is can be used to compare to the price you are paying for the property to make sure you are getting a good value. The comps for the property after rehab can be used to compare your calculated ARV.

If you’re in the same ballpark, you’re one step closer to knowing it is a great investment.

Profitability

Now that you have thought through the Buy, Fix, and Sell, you can start to understand the profitability of your project. For example, if you buy a property for $100,000 and then fix it for $50,000, your “hard” cost is $150,000. Then you turn around and sell it for $200,000. Your gross profit (before any other expenses such as closing costs or cost of funds, etc.) is $50,000.

Sell: $200,000 - Buy $100,000 - Fix $50,000 = Gross Profit: $50,000

Strike Up a Conversation

Your own experience and real estate project history are also important. Good lenders (like Walnut Street Finance) build a relationship with you. It’s a great idea to set up a meet-and-greet with your potential hard money lender. We want to know who you are and why you’re looking to invest in a potential flip. We take every single one of our partnerships very seriously and we want you to succeed.

Ready?

If you’ve done your homework, a hard money lender can help you decide if this is indeed going to be a profitable project.

Some final things to see if you’re in the right spot to embark on a flip and fix project:

  • Do you have a creative side with a little DIY sprinkled in?
  • Are you a great at managing projects?
  • Do you have the time to source vendors, contractors, materials?
  • Do you have the time to provide diligent oversight on your flip?
  • Are you itching for a non-conventional way to invest money?
  • Are you located in a market that is on the up-and-up?

If you answered yes to all of these questions and have checked the boxes in all of the sections above, it may be time to talk to us about a fix and flip loan. We’ll help you every step of the way.

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Topics: Hard Money Lenders & Loans

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