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Real estate can be an excellent investment that provides cash flow and appreciation.
One way to jumpstart your career in real estate investing is to start flipping houses.
Flipping refers to buying a house that needs work (often at a low purchase price), making repairs and renovations, and then selling the property at a profit.
With the right approach and access to funding, you can fix and flip your first house too.
If you’re wondering “How do I buy my first property to flip?” we’ve got you covered. Here are the steps to flipping a house and how to get financing.
Qualify for a fix and flip loan.Before you think about purchasing a fixer-upper, you need to get your finances in order.
You need to have enough money saved to make a down payment — at least 20% of the home’s purchase price — and your credit score must be at or above the lender’s minimum requirements.
But that’s not all. You also need to pay closing costs, which are usually about 4-5% of the home price. Closing costs combined with your renovation budget add up to a substantial amount of cash.
For example, if you purchase a property for $200,000, you’ll need $55,000 at closing. However, there are ways to finance even these costs.
Once you’re financially prepared, you’ll need to familiarize yourself with the process of flipping a house. It’s a big financial commitment, and you shouldn’t jump in without a plan.
Let’s break down the steps to buy your first property to flip.
Real estate investors have several options when it comes to financing their investment property.
These loans can help you buy, fix up, and sell the home. Popular loans include:
The requirements for each of these loans will vary by lender but will need to be met in order for you to qualify.
You’ll need a down payment of at least 20% of the purchase price (sometimes higher, depending on the loan and lender), money to pay closing costs, a credit score of at least 640, and provide documentation.
Typically, your lender will need:
Again, this depends on the loan and the lender.
Find a loan you qualify for.Yes, lenders accept first-time flippers as long as you meet the minimum requirements for the loan. First-timers often need a down payment of at least 20%, but investors with more experience may only need to make a down payment of 10% of the purchase price.
If you’re successful in your first round of flipping, many lenders prefer to work with repeat investors who they know can get the job done.
The best properties for a flip are structurally solid but require cosmetic-only updating.
Big issues — plumbing or electrical problems, mold, a cracked foundation — are expensive to repair and don’t necessarily add to resale value.
According to a 2023 Cost vs. Value Report, homeowners who do an electric HVAC conversion see the biggest return on their investment of 103.5%.
Homeowners who replace their garage door, install manufactured stone veneer and replace the entry door with a steel door and jambs also recoup over 100% of their initial investment.
But most projects offering the greatest returns in resale value are those that prioritize curb appeal, bathrooms, and kitchens.
Another piece of advice is to choose the least expensive home in the nicest neighborhood. Look for a safe community in a highly-rated school district. This is what everyone is looking for, so be prepared for some competition.
If you find yourself asking, “How do I buy my first property to flip?” remember that house flipping comes with risks, but you can mitigate this through planning and due diligence.
Half the battle is finding the right lender to work with. Let REInvestor Guide connect you.
Submit your loan scenario.Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.