How Did the House Flipping Industry Perform in 2017

Last month, ATTOM Data released its report on the house flipping industry for the third quarter of 2017. The numbers show an overall downturn for rehab investors across the country, but there are numerous pockets where the trends are actually on an upward swing. Let’s take a closer look at the numbers:

  • $66,448 – the average gross flipping profit in the third quarter of 2017. That equates to an average return of 47.7%, down from 48.7% in the second quarter of 2017 and 51.2% a year ago. The current return rates are the lowest that they have been in two years.
  • 48,685 – the total number of homes flipped in the third quarter, which is consistent with a year ago. While overall profits are down, the number of flips remains consistent with 2016, when the number of flips hit a ten-year high.
  • 47% – housing markets (44 out of 93) where the number of housing flips increased over the last year.
  • 37% – housing markets that saw returns increase over the last year, counter to the national trend. The metro areas with the highest return increases were Baton Rouge (up 116%), Spokane (up 46%), and Indianapolis (up 35%).

It’s no secret that dwindling housing inventories and rising prices are squeezing investors. Finding an undervalued investment property before another house flipper snaps it up is getting harder and harder. As a result, the investors who are most successful in the current marketplace are those who secure financing early, think bigger, and market aggressively.

More than a third of house flippers now take out house flipping loans to help finance their flips. Fair and equitable residential rehab loans help house flippers mitigate risks, invest in more properties at a time, and invest in higher-end properties with better potential for big returns.

House flipping has never been easy, and the current conditions aren’t making it any easier. But partnering with a smart, reputable private money lender like ZINC Financial can help keep your head above the crowd. Give us a call to learn about our current loan programs or to discuss the current house flipping landscape.

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Posted in House Flipping, Real Estate News

ZINC is Primed for Success in 2018

2017 was quite the year for house flipping news. At the start of the year, there was a great deal of uncertainty about what the economy would do, whether a housing bubble was set to burst, and whether rehab investors would be able to find viable house flipping opportunities. But now that the year is coming to a close, all of that uncertainty has washed away, and we’re happy to say that 2017 has been an exceptional year for our company and for our clients.

Thanks to rising home prices, low inventory levels, and the ingenuity of the rehab investors that we are proud to work with every day, ZINC Financial grew 48% over the course of 2017. We also saw our loan volume increase by 40%. We have always been dedicated to underwriting house flipping loans that enable our clients to create real value and achieve their most ambitious goals. With our expansion into a joint venture program, loans for multiunit buildings, and financing options up to $1,500,000 for our most experienced clients, we have seen our business grow and succeed in tandem with the success of you, our valued clients and partners.

Many of the most exciting deals we saw this year were at the higher end of the market. With home prices still on the rise, finding an underpriced foreclosure is getting harder and harder. But in the up-and-coming neighborhoods of San Francisco, San Jose, Los Angeles, San Diego and the like, a substantial upfront investment can lead to the best ROIs in the house flipping industry. Time and again we saw our more experienced clients hone in on investment properties that others might shy away from due to the initial price tag, but these luxury market buys regularly reaped excellent profits.

For example, one of our clients purchased a home in South Pasadena for $912,000. After putting $145,000 into renovating the home – the cost of an entire house in other parts of the country – the client was able to resell the property for $1,405,705. That works out to a net profit of $348,750 or 38%. Not bad for a single flip!

As successful as 2017 was, we’re looking forward to an even more productive and successful 2018. We hope you enjoy your holidays and ring in the new year with friends and family. Then we hope you’ll get in touch with us to start planning your 2018 investments.

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Posted in Company News

Housing Affordability Continues to Decline

The National Association of Home Builders has reported that home affordability declined in the third quarter of 2017. However, more than half of families that earn the US median household income of $68,000 can afford to buy a home in the current marketplace. Of course, the families that aren’t able to afford homes at that income level live in the most desirable markets. You can get a heck of a lot more house on the median income in Houston than you can in San Diego.

According to the NAHB, 58.3% of homes that sold between July and September were affordable to families at the median income level. That marked a slight decline from the second quarter of 2017.

While the housing market continues to grow stronger with home prices going up around the country, an unfortunate side effect is that more families will be shut out of the housing market. That is part of why 35% of all rental units in the United States today are rental homes and townhomes. That figure has gone up 4% since 2006.

Fortunately, over the next few years the housing inventory should start to catch up with demand. New home sales will continue to outpace sales of existing homes, and new construction should help slow the rise in home values across the country, helping assuage continuing fears of a looming bubble burst.

Indeed, Realtor.com predicts that by the end of 2018, the homeownership rate will stabilize at 63.9%, a very reasonable figure. The site also predicts that Millennials will lead the charge into the home buying market, making up an increasing share of home buyers as the generation keeps #adulting and settling into stable jobs and families.

What does all of this mean for house flippers?

In 2018 and beyond, many of the best ROIs will remain at the higher end of the market. With a dearth of foreclosed properties, the most successful flippers will continue to be those with well thought-out direct mail, web marketing, and person-to-person marketing campaigns.

And house flipping loans will become a larger part of the funding pool for more flippers. The right private money lender can provide residential rehab loans that mitigate risks, defer costs, and help successful investors expand their businesses much more quickly than they could without the extra funding.

To learn more about the current housing market and where we think it’s heading, give our office a call.

Posted in House Flipping, Real Estate News

2017 Year-End Recap

Surprisingly enough, the house flipping industry more or less met expectations in 2017. There was no bubble burst as some experts feared, foreclosure rates remained low, and so did housing inventory levels. Here are some other key highlights from the past year in house flipping news:

Mortgage rates remained low. The current low 30-year mortgage rate allowed many Millennials and other buyers who had left the market for a while come back into the house-buying pool. A stable economy contributed to buyer confidence.

Home prices went up. Despite fears that we peaked in the housing cycle, home prices continued to rise nationwide throughout 2017. Renting was still a popular option among younger generations and some retirees due to high home prices boxing some buyers out of the market. The high prices also meant that house flippers had to get creative. With minimal foreclosed properties to rely on, many house flippers set their sights on higher-end properties, particularly in hot markets like San Francisco, Los Angeles, and Santa Clara.

House flipping loans grew in popularity. Another side effect of high home prices was that more house flippers sought out financing for their flips. A full third of house flippers in the US used financing to fund their flips in 2017, the highest level since 2008. Financing lets flippers invest in more expensive properties or invest in multiple properties at once. Financing also helps mitigate risks and ensures cash flow throughout the flipping process.

Housing inventories remained slow to catch up with demand. Relief from the lack of available housing may not come to home buyers until 2019.

But what will happen in 2018? Realtor.com has six main predictions. They include:

  • Home prices will rise 3.2% next year, a slower rate than 2017.
  • Mortgage rates will hit 5% by the end of 2018.
  • Sales of existing homes will go up 2.5%, and new home sales will go up 7%.

One factor that could have a big effect on the housing market is the proposed GOP tax bill. If it passes, all of these predictions could be altered significantly, but it’s difficult to predict what will happen in this political climate.

What are your predictions for the 2018 house flipping market?

Posted in Company News, Real Estate Investment Blog, Real Estate News

What Successful House Flippers Know

HGTV has given many would-be house flippers the impression that flipping homes is easy. Nothing could be farther from the truth. House flipping is in fact a job, and it’s a job that requires a great deal of skill, planning, dedication, and personal investment. Reading a few house flipping tips articles isn’t enough to get you started. Here’s what successful house flippers understand about this business:

You can’t flip houses with no money down.

Ok, technically you can flip a house with no money using a hard money loan, but that’s a really bad idea. Experienced house flippers expect to pay at least 20-25% of the purchase price out of their own pocket. The rest can come from a private money lender, but that first chunk is needed to show such lenders that you mean business and have skin in the game, so to speak. House flipping loans can help you do more with your capital and are recommended for mitigating your risks, but you can’t expect a private lender to simply hand you a house. It doesn’t work that way.

House flipping is a full-time job.

You can work on a house flip on the weekends or do it casually in your retirement, but don’t expect to make any money that way. The most successful house flippers work 40 hours a week — and sometimes much more — researching potential properties, making offers, negotiating supply costs, and making connections.

You’re only as good as your house flipping team.

A successful house flipper is someone who is backed by a great team. At a minimum, that team should include an excellent general contractor, a real estate agent, and an accountant. You might be able to fill one or more of those roles, but you won’t be able to do everything yourself. Finding great people who you enjoy working with will make your flips more successful and your life much easier.

House flipping isn’t about perfection.

Many novice house flippers get caught up trying to make their flips perfect. They invest in the best materials, incorporate their personal tastes, and/or invest in renovations that won’t pay out. This is a good way to waste your private money loans and waste a lot of time. House flipping is about making macro changes that have clear ROI. Sometimes a fresh coat of paint makes more fiscal sense than a new set of cabinets. Often, leaving the old windows in place and updating the floors instead is the right call. Rather than trying to make your flip perfect, make it better. That’s enough to bring the best ROI.

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Posted in House Flipping, Real Estate News

More Investors Seeking House Flipping Loans

The number of rehab investors who utilize house flipping loans has been on the rise over the last decade. In fact, a recent report out of ATTOM Data Solutions found that a full third of house flippers used financing to flip properties in the first quarter of 2017. That was a significant increase from the previous quarter (31.9%) and a jump from the same quarter one year prior (29.5%). The percentage of house flippers using some form of financing was the highest it has been since the third quarter of 2008 when 37.6% of house flips were purchased with financing.

This house flipping news isn’t surprising, because there are numerous benefits of completing house flips with financing. A house flipping loan allows investors to:

  1. Invest in multiple properties at once.

If all of your assets are tied up in one flip, that closes other doors. Especially with home prices as high as they are, it makes sense to take out a fix and flip loan to increase your available capital and work on multiple projects at the same time.

  1. Mitigate risks.

If your entire life savings go into a fix and flip project, you’re asking for a disaster. It never makes sense to put all of your eggs in one basket. Fill part of the basket with someone else’s eggs, and you’ll be in much better shape if things go wrong with your flip.

  1. Invest in bigger projects.

As previously mentioned, home prices are incredibly high at the moment. Many of the most successful investors in the house flipping industry are turning their focus to high-end properties and apartment complexes, both of which offer exceptional ROI potential. But making those investments requires a great deal of capital up front. This is where a private money loan can completely change the game.

  1. Ensure cash flow.

Nothing ruins a fix and flip schedule faster than a lack of cash flow. A house flipping loan can provide needed funding for renovations, helping investors stay on top of unexpected expenses, keeping their projects moving forward.

To learn about the fix and flip loans offered by ZINC Financial, give our office a call today at 559.326.2509.

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Posted in Fix & Flip Loans, House Flipping, Private Money Loans, Rehab Loans, Rehabbing Tips

Things to Look for in a Private Money Lender

Choosing the right private money lender for your house flipping loans is about more than just the numbers. Of course, the numbers are important, and the terms of your loan should be a top consideration. But don’t make the mistake of simply comparing loan top-sheets. Two rates might look the same, but actually be quite different.

Priority One: The Loan Itself

You’re likely to go with the private money loans that offer the best terms. That makes a lot of sense, just as long as you are thorough in your analysis of those terms.

Is the private money lender underwriting the loan, or are they a broker? If they’re a broker, they’re taking a cut that wouldn’t be part of the deal if you worked directly with the people who control the money.

Beyond the rate, what kinds of points and fees are tied to your loan? An extra loan point could cost you thousands of dollars down the line.

Will you be penalized if you repay the loan early? Will you be able to use any of the funds for rehab costs? These are the sorts of nuances that you need to be keenly aware of when comparing private money lenders.

Priority Two: The Relationship

If you’re looking for a lender to hand over the cash and get out of your way, that’s fine. But you may prefer a lender who’s in your corner, able to provide insider house flipping tips and share the personal experiences of other similar clients.

Maybe you want a lender who is more of a partner, even willing to go in on joint ventures with you, if that’s what you’re interested in.

Perhaps most importantly, you probably want a lender who can be flexible with your loan terms as you become more experienced. The more loans you complete with them, the better rates they’ll offer.

Priority Three: Professionalism

You need to be able to rely upon the reputation of your lender. You need to know that when they say you’ll have your funds in two weeks, they actually mean two weeks. You also need to be able to get in touch with your lender easily, be treated with respect and courtesy when you call, and know that your business means something to them.

At ZINC Financial, we underwrite all of our own loans and fund house flipping loans in seven to ten business days. We strive to make our application process as pain free and quick as possible, with most applications answered in 24 hours. We value our clients as partners, and we look for new ways to serve their needs day by day, flip by flip.

To learn more about our current loan programs, give our office a call at 559.326.2509.

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Posted in Fix & Flip Tips, House Flipping, Rehab Loans

Real Estate Trends to Watch for in Fall of 2017

It’s nothing but good news for house flippers this fall. All of the real estate Fall 2017 trends follow what we’ve seen over the last few years – low inventories, rising home prices, increased buyer confidence, and rising rents. Whether you’re looking for your next buy and hold property or looking to break into the house flipping industry for the first time, your timing is excellent.

Let’s take a look at some of the numbers:

  • ATTOM Data Solutions reports that homeowners who sold their homes in the second quarter of 2017 enjoyed an average price gain of $51,000 and an average return of 26%. That was the highest average price gain since 2007, when those numbers were $57,000 and 27%.
  • In a separate report, ATTOM Data Solutions found that the total number of new foreclosures in the US during the first six months of 2017 was 428,400. That marks a 20% decrease from the same period one year prior. Despite these drops, house flipping remains incredibly strong as more flippers turn to private funding, larger flips, and more stable business models that don’t rely on predatory practices.
  • com crunched the numbers (again, from ATTOM Data Solutions), and found that in 2017, house flippers are making gross returns of 48.6%. They estimate that 20% to 30% of those returns go toward covering expenses. Owners of rental properties are making 13% ROI, on average, this year. And your own home is likely to have appreciated 10% this year, with a 5-year appreciation of 44.8%, on average.
  • com also reported that the for-sale housing inventory across the nation dropped 1% between August and September and is down 9% from September 2016, which is pushing home prices up. The median time on the market for properties listed on realtor.com was 69 days in September, which is eight days less than the same time last year.

Put all of this house flipping news together, and it means we are looking at a seller’s market that is expected to continue for the next several months. Typically, home buying tends to slow down in late fall and winter, but those anticipated dips are unlikely to have a major impact on these overarching trends.

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Posted in Fix & Flip Tips, House Flipping, Real Estate News

What is Debt Coverage Ratio?

You may have seen the term “DCR” or “DSCR” while learning about flipping properties and had no idea what it meant. One of the downfalls of property investors is that we use far too many TLAs – three letter acronyms.

DCR stands for debt coverage ratio. DSCR stands for debt service coverage ratio and means the same thing. Understanding your debt coverage ratio is an important part of understanding whether your house flipping or buy and hold investment is actually a good deal. It will also be important for securing house flipping loans.

Your debt coverage ratio is used to measure your ability to pay a property’s monthly mortgage payments with income generated by the property. It’s a simple guide for assessing how much you can make on a property each year (or how much you’ll lose).

To calculate the debt coverage ratio, you need two numbers. First, you need to know the net operating income (NOI) of the property. This is the total amount of money that you can make off of the property every year by renting it out. Next, you need to know the annual debt service (this is where the S in DSCR comes from). The annual debt service is the total cost of your mortgage payments for one year including any accrued interest but excluding any escrow payments.

To get your debt coverage ratio, simply divide the net operating income by the annual debt service.

Here’s an example:

Say you’re renting out a small single family home, and you’re bringing in $38,000 annually in net income from the property, but your mortgage payments are $28,500 annually. When you divide 38,000 by 28,500, you get a debt coverage ratio of 1.33. That means that you are making 33% on the property every year.

Why does the DCR matter if you’re planning to flip a property? Because you always need a backup plan. If you’re unable to resell an investment property quickly, the best backup plan is usually to rent it out for a while in order to keep paying off your house flipping loans and avoid major losses. Most private lenders look for a debt coverage ratio of at least 1.25. The higher the ratio the better, generally speaking.

To get more helpful house flipping tips or to learn more about how to properly calculate your DCR, give our office a call at (559) 326-2509.

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Posted in House Flipping

Numbers Show The Bay Area is in Demand

The fact that the Bay Area is one of the hottest housing markets in the country isn’t exactly ground-breaking house flipping news. But you may be surprised to learn just how much home prices have increased here over the last five years.

According to The Mercury News, home prices in the Bay Area have effectively doubled over the last five years. You now need to make at least $179,390 per year in order to afford a median price home in the region. That median price point sits at $895,000.

The numbers get even more extreme when you focus in on the Bay Area’s most desirable areas. For example, the median home price in San Francisco is currently $1,450,000; in San Mateo it’s $1,469,000; and in Santa Clara County it’s $1,183,440. Put in terms of buyers, only 12% of potential buyers in San Francisco can afford a median priced home, only 14% can buy in San Mateo, and only 17% can buy in Santa Clara.

Affordability is a problem for buyers all over the state. When you look at California as a whole, the minimum family income needed to buy a median priced home is $110,890. The statewide median price is $553,260.

What does this mean for the house flipping industry?

The Bay Area still has some of the most lucrative markets for house flippers. The biggest gross profits routinely come out of San Francisco and Santa Clara. But traditional house flipping strategies may not be as effective here. There aren’t exactly a lot of underpriced properties or homes in a state of extreme disrepair. You can’t really focus on the low end of the market in the Bay Area, because the whole market is at the high end.

What house flippers can do is look for luxury homes that are out of date or in need of some smart remodeling. By opening up floor plans, updating fixtures and décor, and making some simple cosmetic fixes, house flippers can make excellent profits in the Bay Area.

The trick is getting your foot in the door. To be competitive in this market you will absolutely need to be able to make a cash offer, so having your financing in place ahead of time is a key part of being able to come out on top when an ideal property comes on the market.

Give our office a call today to secure your rehab loan pre-approval and take advantage of this exceptionally strong housing market.

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Posted in Real Estate News

What’s Going on with California Foreclosures?

House flipping and foreclosures: they generally go hand-in-hand. People who are new to the business often think that house flippers depend entirely upon new foreclosures. But foreclosures are way down in California, and house flipping is up. How can that be?

The Numbers: Foreclosures & Flips in California

In 2016, foreclosed homes represented about half of one percent of all housing units in California. Altogether, that’s 78,646 foreclosure filings in the state last year, according to ATTOM Data Solutions. As a point of reference, those figures represent a 15% decrease in foreclosures from 2015 and a staggering 85% decrease from their all-time high in 2010.

Alternatively, across the country house flips made up 5.7% of all single-family home and condo sales in 2016.  In California, the rate of house flipping was substantially higher. Home flips made up 10.1% of all California home sales in 2016, also according to ATTOM Data.

Factors Driving the House Flipping Market

With so few foreclosed properties, the house flipping market is being driven by a variety of other factors. First, home prices are still on the rise thanks to low supply and a strong economy. Second, flippers are expanding their horizons and looking into a wider array of market types. And third, the amount of available capital for house flipping loans has gone up substantially in recent years.

More and more house flippers are turning to outside sources for financing, making it possible for them to invest in bigger flips and more of them. In 2016, 31.5% of all rehab properties were purchased with financing, a six-year high. Altogether, there was about $12.2 billion in financing invested in house flips, a nine-year high.

The house flipping tips that made sense in the 1990s and early 2000s are a thing of the past. The market no longer relies on foreclosures but instead relies on smart investors ready to look for unique opportunities and take part in advantageous financial partnerships.

If you’re considering getting into the growing house flipping market, give us a call to learn more about the current market trends. Our experienced team can help you get a sense of what exactly goes into a house flip and provide you with fast, reliable funding if and when you’re ready.

Posted in Real Estate News

Guide to Using Our Deal Analyzer

All the house flipping tips in the world won’t save your flip if you don’t take the time to do the math before you make your investment. Being diligent about the numbers upfront can save you a great deal of time and energy, as well as a great deal of money.

But where to get started? If you’re new to house flipping, the necessary math might feel a bit overwhelming. Fortunately, the ZINC Financial Deal Analyzer can help.

You can find our free Deal Analyzer tool here or from the homepage of our website. It’s the first link under the “Quick Links” section on the upper righthand side. Be sure to bookmark the Deal Analyzer for easy access in the future.

Using the Deal Analyzer is as simple as plugging in numbers and pressing “Calculate.” The analyzer will ask for some key financial information, including:

  • The purchase price
  • The estimated total rehab costs
  • The expected after repair value (ARV)
  • The estimated time it will take to flip the property in months
  • The size of the home flipping loans you’ll be needing
  • The interest rate on the loan
  • The loan points
  • The estimated property tax
  • And a few estimated fees

The more accurate you can be with these numbers, the more useful the Deal Analyzer will be. You may want to start by trying different number combinations to hone in on an appropriate investment range. But as you get closer to actually investing in a property, you will want to be precise with your numbers.

Once you plug all of your numbers in, the Deal Analyzer will generate a report for you including all of your inputted information and some key calculations about the proposed flip. You will get an estimate of the total holding costs, the selling costs, the total amount of cash needed to complete the project, and the estimated net profit. To keep everything simple and organized, you can print your results or save them as a PDF to look at later.

If you need help using the Deal Analyzer or if you’re ready to take next steps, give us a call at (559) 326-2509.

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Posted in Fix & Flip Tips, House Flipping, Rehab Loans, Rehabbing Tips

Acquisition Strategies Used by Experienced House Flippers

If your only method for finding new investment properties is surfing the MLS, you’re likely far behind your competition in terms of deals. We can provide you with all the house flipping tips in the world, but if you can’t find a property to rehab in the first place, they’ll all be moot.

Experienced investors don’t wait for properties to come on the market. They make properties come to them, and then they have their house flipping loans ready to go so they can move fast and make the best possible ROI. Here are four strategies for acquiring investment properties that you should explore:

  1. Direct Mailers

Top house flippers send out direct mailers that are targeted at owners of distressed properties. They hone their list and invest in direct marketing every month so that when people in their targeted areas are ready to sell, those sellers call them directly.

  1. A website

Best used in tandem with a direct mailer or other advertising campaign, a website lets people find out more about you without actually calling, which is a big step that most people aren’t willing to make without more information. A website gives them another way to reach out and for you to show how easy you can make it for the seller to get cash quickly for their run-down property.

  1. Wholesalers

There is a whole world of wholesalers who buy distressed properties and resell them to flippers in a matter of days. This essentially works as a finding service. (Wholesaling is also a good way to learn more about the house flipping business and make some quick cash before jumping in on your own flips.)

  1. Referrals

Networking is a key component of house flipping, especially if you want to flip houses on a large scale. The more realtors, contractors, and fellow house flippers you get to know, the more properties will start falling into your lap. Always have business cards on hand, and let everyone you meet know what business you’re in – you never know where your next referral might come from.

To learn more about any of these acquisition strategies, give our office a call at 559.326.2509. We’d be happy to answer any questions you may have and tell you more about the current terms of our house flipping loans.

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Posted in Fix & Flip Loans, Fix & Flip Tips, House Flipping, Rehab Loans, Rehabbing Tips

How to Find Top-Notch Contractors for Your Flip

In the battle for worst people to work with, contractors give lawyers a run for their money. It seems that every house flipper has horror stories about contractors who fell way behind schedule, delivered shoddy work, or simply didn’t finish the job. Finding a great contractor is like finding the golden ticket – it can make all the difference in the success of your flip.

Fortunately, finding a great contractor isn’t nearly as hard as it used to be thanks to the wonder that is the internet. Now, you can use free resources like Angie’s List to compare multiple contractors side by side, read reviews, and check business licenses.

So the challenge these days isn’t necessarily finding a good contractor but finding the right contractor for your job. Here are our top suggestions for choosing a great contractor:

  • Shop around. Don’t hire the first contractor that you contact. Get in touch with at least three contractors and compare prices. You should also compare their terms – will they sign a contract, or do they work based off of handshake agreements? How long do they say the work will take them, and how precise are they with their projected costs? Remember that there is a huge difference between “it should cost” and “it will cost.”
  • Read reviews. Be wary of reviews that might be written by the contractor themselves. Look for a variety of reviews that are honest and thorough, not just singing praises but actually discussing details. The best reviews come from people you know, so ask around.
  • Check their work. Ask to see pictures of similar jobs. If they’ve never done a project quite like yours before, that should be a red flag. If they’re not willing to show you pictures, that’s another red flag. In any samples that you look at, pay close attention to detail. Look for what they might not be showing you.
  • Consider breaking things up. It might make the most sense to hire one person for the floors and another for the cabinets. General contractors are convenient because they can handle everything, but you’ll likely end up spending more by using a general contractor over specialists.

If you have more questions about how to choose a contractor or want more house flipping tips, give our office a call anytime at 559.326.2509. We can also tell you about our current house flipping loans and the latest market trends.

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Posted in Fix & Flip Loans, Fix & Flip Tips, House Flipping, Real Estate Investment Blog

Guess Which Room Generates the Most ROI When Remodeling?

Which room would you think has the potential to generate the best ROI in a house flip? The master bedroom? The kitchen?

The answer is actually the bathroom. A mid-range bathroom remodel during house flipping has the great potential return on investment. If you put $3,000 into a bathroom, the expected return is $1.71 for every dollar spent.

If you think about it, it makes a lot of sense. Fixing up a bathroom doesn’t take all that much work if you know what you’re doing, but it’s an intimidating enough project that, if left undone, potential homebuyers won’t want to handle it themselves. Plus, tastes are usually pretty generic when it comes to bathrooms. A nice neutral tile, a pale color on the walls, and a nice big shower head will please just about anyone who walks in.

Compare that to a kitchen. Doing a full remodel on a kitchen during your fix and flip can cost anywhere from $10,000 to $30,000. For that huge investment, you might end up creating a kitchen that doesn’t suit the tastes of half your potential buyers. Perhaps you went too modern or too dark with the cabinetry or too small with the storage space. People have very particular tastes when it comes to kitchens, and the value added to the home simply isn’t enough to make a huge kitchen re-do worthwhile.

Instead, if the existing kitchen is in reasonable shape, you can add a fair amount of ROI by simply painting the cabinets and replacing the hardware. Upgrading the appliances might be worth your while, but that’s a judgement call.

Another room to avoid is the unfinished basement. Unfinished basements are right up there with kitchens as the worst return on your investment.

What should you do if your flip has an unfinished basement? Don’t touch it. Leave it unfinished, and potential buyers will love it. They’ll walk in and see endless opportunity. Maybe this buyer would make it a man-cave and that buyer would make it a giant playroom for their kids. If you leave it alone, they can do whatever they want with it. The same principle applies to backyards.

Whatever your rehab plans, ZINC Financial can help you achieve them with competitive rehab loans funded quickly and reliably. Give us a call at 559.326.2509 to learn about our current loan terms.

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Posted in Fix & Flip Tips, House Flipping