Unfortunately, there are many people who aggressively enter the home renovation business by following the misconstrued purchase-renovate-sell model seen on reality shows. However, television does not show the reality of the process of identifying a good investment, budgeting and executing the renovations, timing to offer the property to the market and selecting a lender offering a loan product that fits this objective. A hard money lender in Los Angeles will fit this objective.
Listed below are the strategies and guidelines to successfully buy, renovate and profitably sell a house.
Purchase the House at the Right Price
An experienced real estate investor with a short-term objective knows that profitability will not occur if the property is purchased at too high of a price. Once the cost of the renovation scope is known, set a limit to the purchase price and stick to it. The cost of the fix-up is static; therefore, the profit at the sale is determined by the purchase price. Short-term owners do not get the benefit of appreciation over time.
Obtain Good Numbers for the Renovation Budget
Regardless of the patent issues of the home, always get an inspection from a reputable and licensed company to focus on any latent defects. It is advisable to obtain 2-3 bids from contractors specializing in home renovation. This is the step where the profit margin of the investment is determined.
Hire the Right Professionals
Unfortunately, many real estate investors do not vet contractors for licensure, insurance or reputation. The lowest bid is not the same as the lowest qualified bid. The contractor should be attentive to the work scope, the budget and the time schedule for completion. A contractor should never require payment for unfinished work.
Time is Money
The use of a sub-standard contractor will just about guarantee there will be delays in the project. The materials may not be delivered on time or the contractor may not show on a scheduled day. If hard money is funding the purchase and the renovation, then chances are very good that the cost of money during any delay will be more than the money supposedly saved on the sub-standard contractor.
The start of the renovations is the time to be thinking of positioning the property to the market for sale. It is advisable to not begin this important step when construction is complete. A potential buyer will see the value of the renovations in process.
The profitability on any short-term investment will decrease over time.
Find the Right Hard Money Lender
Generally, the objective of the purchase-renovate-sell model over the short term will not fit the loan parameters of a traditional bank. The goal is to find the right hard money lender who can close quickly at the terms given in the loan commitment. It is wise to get pre-approved with the lender and obtain a term sheet for the loan prior to identifying the investment opportunity.
When the objective is the flip model over a short period, then attention needs to always be given to all aspects of the investment simultaneously. The steps in this process are not mutually exclusive. The renovation budget, the purchase price, the loan terms and the holding period are the determining factors of the profitability of the investment.
If you are interested in purchasing real estate or need funding for your next project, you need to work with a reputable and respected hard money lender in Los Angeles. PB Financial Group is a premier direct hard money, and bridge lender, who has been providing quick funding since 2006 and has funded over 2,700 hard money/private money loans. Our objective is to work to satisfy your financing needs on important real estate projects throughout California in an efficient and effective manner.
To learn more about how to successfully finance your next real estate venture, please contact PB Financial Group at 877.700.3707 to schedule a consultation or visit www.CalHardMoney.com to learn more.
PB Financial NMLS #357614/DRE #01522495
