OfflineAccording to RealtyTrac Inc., house flipping is making a comeback; house flips in 2013 rose 16 percent from 2012, and increased 114 percent from 2011. Furthermore, the average gross profit for a flip was $58,081 in 2013, up from an average of $45,769 in 2012.
Hilco Real Estate Finance, a private money lender for real estate rehabbers, is experiencing the uptick in the fix and flip market first-hand. The business unit has issued over $75 million in lines of credit since its inception in July of 2013, enabling fix and flip investors and realtors to acquire, renovate, sell and lease properties at a higher volume and a faster pace. The average of all approved lines of credit is approximately $800,000.
In 2013, approximately 20% of all home sales in the U.S. were to investors, who collectively purchased over 1 million homes with an aggregate price of over $150 billion. Fifty percent of these sales were paid for in cash, with no financing. Many thousands of professional investors purchased multiple properties. According to the National Association of Realtors, from 2002 – 2012, investor purchases averaged 1.1 million homes ($175 billion) annually. On average, from 2002 – 2013, investors purchased 22% of all homes sold. In today’s revved up housing market, competition for properties is fierce, as many investors are snapping up properties in desirable markets to sell to consumers, and other investors buy homes and reposition them as single-family rentals.
“There is money to be had in the home flipping business,” said Mark Filler, CEO of Hilco Real Estate Finance. “However, the hedge funds and larger investors have the advantage on the best properties because they can outbid the smaller guys because they have the cash. Our goal is to help independent investors and realtors increase their buying power (and compete as cash buyers) while also assisting them through the whole house flipping process.”
“While the business opportunity is ripe in the home flipping market, there are several ways to optimize your success,” said Filler. “Our senior management team has over 50 years of real estate lending experience and has financed over $150 billion in real estate. Below are some of the main financial tips independent investors and realtors should think about.”
Do Your Homework. Find Credible Lending Sources to Increase Buying Power
As a result of the real estate and mortgage “meltdown,” most traditional lending sources exited this market. Therefore, investors have less access to credit and often look to private investors such as friends and family. These cash sources can be limited in quantity, very expensive and unreliable. Instead, look for lenders that can provide a consistent, dependable source of capital that can provide you with the cash needed to purchase properties with the greatest after repair value potential. At Hilco Real Estate Finance, for example, we issue lines of credit up to three million dollars to help investors maximize their purchase potential.
Take Your Time in Sourcing the Right Property
Buyers are looking for turn-key, remodeled properties in desirable areas, therefore it is important to take your time in sourcing the right home in the right location and making sure you fully understand the updates that need to be made. For example, if you purchase a home for $50,000 in a neighborhood with an average home value of $100,000, and then try to sell it for a profit when it’s finished for over $200,000, this is not going to be successful for you. At Hilco Real Estate Finance, we help investors source and sell the best properties, in addition to providing the financing.
Don’t Let Unforeseen Costs Surprise You
Don’t forget about potentially unforeseen renovation costs. If you plan to fix the house up and sell it for a profit, the sale price should exceed the combined cost of acquisition, the cost of holding the property and the cost of renovations. Hilco Real Estate Finance can serve as a second pair of eyes for investors helping them identify potential shortfalls and avoid costly mistakes.
Understand Your Credit Score
Credit is still highly misunderstood and credit scores can hurt your chances of obtaining any loan, including a real estate loan. Getting your credit report from a federally mandated site does not affect your credit score and they are free on an annual basis. Make sure to review the report and fix any mistakes to increase your score before going to lenders. Hilco Real Estate Finance can refer you to firms that will best assist you. mguiterez
Almost every day I speak with someone who has been told by a real estate agent or someone else that what we do is either illegal or unethical.
I want to speak on behalf of investors throughout the U.S. who have made an outstanding mark on the real estate industry and on the economy in general over the past two years. Just look at the numbers above--1 million homes purchased by investors, over $150 Billion in funds moving in the economy, half of that in flat out cash? That's astounding, and that's a really big boost to the U.S. economy, as well as to the world's economy. When President Obama indicated that it would not be government who would be pulling the economy out of a slump, it would be business, especially small business, he might as well have been talking to us as investors.
If you ever lack pride in what you are doing as an investor, I'd like you to think about those 1 million homes that were fixed up, improved, and otherwise presented to the populace of the United States as usable, effective housing. There should be a real swell in joy and a confidence to move ahead from recognizing the contributions that we as a team of investors bring to the world. Congratulations! You are a part of that!
Dallin Wall
Real Estate Training Team
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