A few years ago, in the wake of the Great Recession, easy fix and flip deals were everywhere – the number of foreclosed properties needing minor renovations was high and banks needed to sell properties quickly (and were willing to take discounts to do so). With a steady supply of easy projects, the fix and flip market attracted many new investors who were able to earn quick returns. Today, though, the fix and flip market is much more competitive – there are fewer easy projects and those that do exist are grabbed up by the large pool of waiting investors. In this market, what is a new fix and flip investor to do?
A great option for new fix and flip investors is to partner with a more experienced investor or contractor for the first few deals. The first reason for this is simply that it may help you avoid rookie mistakes. Today’s fix and flip deals have thinner profit margins and typically require more intensive renovations, so avoiding mistakes is key to protecting your profit margin. Secondly, hard money lenders are increasingly looking at the borrower’s experience levels when structuring loans. If you’re a new investor, or have only done one or two projects in the last few years, you likely won’t get the best terms on your hard money loan. Inexperienced borrowers will likely be required to bring more cash into a deal and pay a higher interest rate – both of which will erode the profitability of your project.
Given this, how can you find a partner willing to help with your first projects? One idea is to network with local contractors. This is always an important step in building your fix and flip business, as you’ll need good contractors along the way – but you can also look for other contacts within this group. Ask contractors for introductions to other active investors in the area – or see if the contractor herself would be willing to partner with you. A second idea is to attend local investment clubs, as you’ll likely meet potential partners there. Don’t forget to ask local real estate agents, as well, as they likely know active investors in the area.
Consider Buy and Hold
Today, more investors are considering trading the short-term profits of fix and flip for the longer-term benefits of buy and hold (or fix and hold). Rather than selling the property quickly, you can build long-term income by owning the property as a rental investment. In many markets, rental rates are strong and provide attractive returns for real estate investors. Over the long-term, the rental income will pay down your mortgage balance, allowing your wealth to build over time.
To pursue this strategy, you’ll need to find a lender that offers long-term financing for rental properties. Banks will always be the lowest cost, but this option may be cumbersome unless you have impeccable credit. Recently, private lenders and hard money lenders have aggressively begun offering long-term rental loans that provide easier options for real estate investors. These loans are underwritten based on the property’s income, and your personal income is typically not reviewed. LYNK Capital offers long-term financing for rental properties starting at 70%, and we’d be happy to help you learn more about options for financing your next investment property.