Hello Everyone, its been a long time since I have shared my thoughts on everything Real Estate related that I have encountered. At this time, I want to discuss the process of How to buy Distressed properties.
The time and events continue to pass by so I wanted to make sure that I get some new content on my site for those who are entering the Real Estate investing world. Or maybe you are already investing in Real Estate and are looking at doing some different activities such as buying distressed properties.
Whatever the case may be, I hope this information finds you at the right time and that you may be able to apply it at some point in your investing journey.
Working Within Your Proposed Budget
One of the first things to get in place is to gather your financial resources and put together a financial plan. This is where I bring in my Power Team members to assist me in crafting my budget for acquiring the next distressed property to Flip. BTW, whenever I use the word FLIP, it means to purchase, rehab, and Sell afterwards. Some investors get fancy and stage the property after the Rehab phase and I plan to do that as well. Stay tuned….
I want to point that out because the term flipping means different things to different people. So, as the financial plan is coming together by accessing knowledge of your Mortgage broker, he/she can best advise you on what types of loan products would be best for you. My favorite product is to use what’s a 203K loan or sometimes referred to as a “Construction Loan”.
As you continue with a good track record of managing multiple investment loans and continue networking with Like-minded individuals, you may encounter situations whereby you can be given access to Private Lenders. This is a more advanced process ONLY because the Private Lenders TYPICALLY deal with RE Investors with a Positive track record of completing deals and developing Positive, Business relationships.
There a LOT of ways to create a Financial budget to successfully complete a FLIP. For example, some investors simply turn to a HML (Hard Money Lender). These type of Lenders don’t care about your credit scores or your income/job status, they look at the deal itself.
Right along with creating your financial plan, you are also in the hunt to find the Right Power Team members to assist you in achieving the goal of Rehabbing a distressed property that will lead to a Positive Profit to your Business.
Working With Contractors
For the Business Model of Flipping distressed properties, you want to work with General Contractors who are Licensed, Bonded, and Insured. You can find groups to join on Facebook or any other Social media platform and network with those members. You want to make sure they have a good track record of finishing jobs and they have skilled workers who are reliable.
Remember to simply be patient and start with small projects and then as your experience grows, your ability to acquire more deals will eventually grow as well. Once you assess your financial needs for the type of Property then you will find the BEST scenario that fits your situation. In addition, you can always mix and match however you can in order to accumulate the necessary resources to acquire distressed real estate properties.
The Property Hunt Begins…
This is where the research process begins. The Power Team members to use during this phase would be RE Wholesalers and/or RE Agents. This is where things get interesting but lets set the stage for how the process works. First, the concept is that investors make money when we BUY right! This means no matter what happens after the acquisition, we SHOULD be able to recoup initial funds in case the deal goes south (More on this Later).
RE Wholesalers are the type of investors who find deals that are OFF-MARKET, meaning not listed on the MLS. The MLS is the Listing service that RE Agents have somewhat exclusive access to where they can enter type of properties and can identify, in most cases, many potential deals.
RE Wholesalers will tie up the deal as in getting in under contract, then they market those deals to RE Flippers (LIKE Myself) who will bring in cash to close the deal or have the means to get the deal financed. RE Wholesalers will get paid an assignment Fee typically for their part in getting the deal under contract hopefully at a great price to entice the RE Flipper to make the acquisition based off of their work.
RE Agents will send the RE Flipper deals and take you on-site to explore potential deals that could meet your criteria. RE Agents also can run comps (comparables). Running comps is the process of analyzing SOLD prices of homes that are similar to what you are looking for in your designated investing area. This is a key component of property research.
You need to verify Title insurance and then complete Due Diligence on getting the property and Purchase Price under a Purchase/Sale Agreement. Title insurance is VERY important and it allows or NOT allow the transaction to complete as it identifies that a)The Seller is actually the owner of the property per Tax Records and b) The property is clear of any additional liens & encumbrances against the property other than the 1st Position Mortgage.
Running comps gives you an idea of profit margins to look forward to once the rehab work is done and all other expenses have been paid out.
RE Agents also take you to the property locations that are on the MLS to give you inside access to these properties as well.
Another member of your Power Team would be a Property Inspector. The role of this Professional is to conduct an all-out invasive inspection from flooring to the roof and all mechanicals, if any, to determine what repairs are needed. This is an invaluable service to the investor so that He/She knows exactly what is needed in terms of repairs.
Another key component is having a Title company run a title search on the property to ensure it is free of liens and encumbrances against the property.
Completing Due Diligence- Research
From all the information gathered thus far, this is the key timeframe to formulate the pros and cons of this potential deal and to see if it is something doable in your investment circum
stance to be a Profitable deal. First, you are running the ALL the numbers involved with the property. If the numbers don’t add up to where it will lead to a profit no matter what outcome you are aiming for then its easier to pass on a deal upfront before spending thousands of dollars and you are not near your completion part where you thought you should be.
However, if the numbers DO Add up in your favor, then all other aspects must be considered. This begins with an Appraiser providing an appraisal to give you the ARV of the property. ARV stands for After Repair Value. Once you know what this number is, then you can run your calculations to determine your profit margins and get an idea for how well you accomplished your goal from beginning to end.
The Fix n Flip Niche portion of Real Estate investing is very time-consuming. You may not get everything right or exact, but its all about building your expertise. It’s about networking with Like-minded investors and share your experience and listen to those who have done it or do same projects that you are doing.
Tune in next time for more great details just like this one!!!
Enjoy the Journey!!