In conjunction with the rise in house prices and demand, the profit potential for flipping a home in Boston is once more drawing the entrepreneur-minded.
Flipping a home is the process of purchasing a property - often one in a rundown condition - then improving its value and reselling it for a quick profit. Quick is the key word in this strategy, since a fast turnover allows capital to be devoted to purchase and renovation rather than operating and maintenance costs. It's why successful house flippers generally focus on quick gains over maximizing profits.
While this has proven to be a lucrative strategy in the past, financing has always been the first major hurdle for anyone flipping a home. If you've been noticing some of the inviting house-flipping prospects in the greater Boston area, several financing routes sometimes make such a deal possible:
Larger Down Payment:
Flipping a house in Boston in the current lending market will often require a significant down payment. Since launching the project might require at least 25-40% for financing, it's essential that you prepare sufficient cash reserves to complete the renovations envisioned - and successful house flippers suggest you add 20% to the cost estimate!
Seller financing - a mortgage provided by the home owner - is also called a 'purchase money' morgage. Sellers may be willing to provide financing if they have had trouble selling their property, which is often the case when a home flipper believes its value can be greatly enhanced by repair or remodeling. Seller financing would be more common were it not necessary that the original owner own the home outright.
Hard Money Loan:
Hard money loans - also known as short-term bridge loans - are another common source of financing for flipping a home in Boston. Hard money loans are backed by the value of the property rather than the credit record of the borrower, and typically feature a lower loan-to-value ratio than found in a bank mortgage. The added risk has a cost: expect to provide a large deposit and a premium for the loan (often 8% or more).
While sub-prime mortgagees may no longer be as readily available as they once were, there are still multiple sources of financing for entrepreneurs who can spot profit possibilities for flipping a home in Boston. With real estate prices continuing to rise, this fall again holds promise in the house-flipping arena. Call us if you are interested in learning about some of the latest prospects!