Category: Flip financing

4 things to remember when financing and flipping property

There’s no perfect recipe for a good property flip. Success will result mainly from efficiently allocating the time and money available to you. The best approach to allocating these is to plan the project according to your skills and to the characteristics of the property and its location. However, even though sound planning is critical, experienced investors know they’ll have to adapt the plan along the way. What might have seemed like a good idea on paper may end up being too costly or time-consuming for the return it would bring.

I myself have participated in dozens of real estate flips and I’ve made every mistake possible. Here are 4 things I wish I’d known when I started my flipping career.

Time is the largest opportunity cost in a property flip

Even though time and effort don’t always involve making an outlay of cash, they are an investment and should be included when calculating profits. As they say, time is money!

This is extremely relevant to real estate flips, but too many investors forget to take it into account. For instance, if you make a profit of $50,000 on a three-month project that requires you to invest 150 hours of your free time, it’s probably more profitable than another project that makes $100,000 but drags on for months and puts constant pressure on you.

It’s important to understand that there are two types of time to consider during a flip.

First, there’s the project’s timeline, or duration, from the financing and purchase of the property until the sale. As the name suggests, a flip is the opposite of a “buy and hold” strategy. While staying focussed on quality, the goal with a flip is to move it as fast as possible.

Second, you have to estimate the actual amount of time you will need to invest in the project. Aside from the work you will take on, you should also count hours spent shopping for materials, negotiating with subcontractors and even travel time. For example, renovating a cottage in a location that’s in high demand might seem financially profitable, but if it’s a two-hour drive from your home, the time you’ll spend in your car could represent a sizeable opportunity cost.

Note however that the many hours you spend looking for a property are part of the sunk costs. In theory, this time should be subtracted from the project’s profits. Working with a real estate broker can considerably optimize this part of the project.

The work depends on the specifics of the project

Should you re-do the floors throughout or add light in the living room by installing new windows? Update the bathroom or redesign the kitchen? There are many “experts” out there who will tell you that one thing or another “absolutely” has to be done.

But I’ll say it again, there’s no perfect recipe. To make the best decisions—meaning those that minimize costs and maximize the value added—you have to establish who your target clientele is.

For instance, in a Montréal neighbourhood like Rosemont–La Petite-Patrie, which is highly sought out by young families, adding a floor to a shoebox-type home is much more complex than renovating a bathroom, but the value it adds can be enormous.

Understanding the trends of the market across Quebec is important, but it’s even more valuable to study the local market, and even the hyperlocal market. This involves determining who the typical buyers are in an area (demand) and what types of properties are available there (offer).

For example, transforming a duplex in the Plateau Mont-Royal into a single-family home could be profitable if you determine that your ideal potential buyer has no interest in managing a tenant.

The best way to get an idea of all this is to work with a real estate broker.

Choosing experts and selecting the tasks to do yourself

Let’s be clear: the more tasks you take on, the more you’ll reduce your costs and increase your profit. However, qualified experts are needed for things like electrical work. You can’t learn to be a drywall finisher or real estate broker in a couple of days.

So, it’s extremely important to be honest with yourself. If it will take you two weeks to paint a house, it will probably be more cost-effective to hire a professional painter who can do the whole job in a day.

When I did my first flip, I was dead set on selling it myself to save the broker’s commission. But in the three months after I put the property up for sale, the only potential buyers I met were bargain hunters with a million questions. Showings were exhausting and discouraging because they didn’t lead anywhere.

I finally decided to work with a broker. The house sold two weeks later.

The lesson here is to take on the jobs you can do efficiently and let the pros do the rest. Obviously, your job is to take the time to choose your experts carefully. The way to do this is to request three quotes and not choose only based on price. It’s just as important to work with people you trust completely.

Mortgage financing is about more than the interest rate

Finding the right type of financing for a property flip is extremely important. You should shop around. See what’s available for your financial situation and your project. The terms of mortgage loans from large banks and credit unions aren’t always appropriate for financing a flip. In some cases, the criteria may be too restrictive. But this shouldn’t stop you from going forward with your project.

A private lender can offer an advantageous financing solution. For instance, Quebec private lender Victoria Financial bases its financing decisions on three main criteria:

The property is a single-family home, a condo, a commercial or income building, or a lot.
The property is located in a serviced urban area.
The financing is less than or equal to 75% of the property value.

Plus, you can save time because processing your request is often much faster with a private lender than a conventional one. And, it’s possible for you to pay only the interest on the loan for the duration of the project. This can reduce your liquidity needs until you sell.

Takeaways

It will always be possible to make money through a property flip. It’s just a matter of careful time management, allocating your resources effectively and doing business with competent and trustworthy partners.

5 ways to finance your renovations

5 ways to finance renovations in Quebec in 2022

The more time we all spend at home, the more we’re drawn to the idea of doing major home renovations. In the current circumstances, adding a room for a home office, revamping the interior design or redoing the backyard (to spend holidays there) is not just a luxury but a must! Renovating can also help take advantage of the favourable conditions in the real estate market since strategic improvements can considerably increase your property’s resale value.

And, of course, sometimes there’s no other option when wear and tear, or just bad luck, come into play. Real estate is an important asset that’s relatively low risk but that requires a baseline of maintenance and management.

Drawing from your savings and emergency fund to finance renovations

It’s generally recommended to have an emergency fund that could cover at least three months of current expenditures. While it’s preferable for this sum to be gaining interest, it should do that in a way that keeps it liquid, so it’s quickly and easily accessible.

I to meet small unforeseen expenses. But for larger work that you can plan in advance, it’s sometimes better to just let

And in the event of unexpected extra costs during major renovations that are financed with a loan, your emergency fund will still be available to cover them.

Financing renovations with a credit card, credit line or personal loan

For medium- or large-scale projects, your credit card or credit line each offers advantages as well as non-negligible disadvantages.

Regardless of the situation, if you benefit from generous rewards, you should make all your purchases with your credit card to maximize your points or cashback. If you know significant expenses are coming up, it may be worthwhile to shop for a specific credit card that will optimize your benefits. However, the main risk with credit cards is not managing the repayment well. A balance of $10,000 that stays on your account for only three months, at a 20% interest, will cost you nearly $500.

Credit lines generally offer a better interest rate. Having access to a credit line can be very useful for longer-term work that requires sporadic cash outlays. However, it also requires a good dose of budgetary discipline. Since credit lines only require that the interest fees be paid on a monthly basis, too many borrowers end up paying a lot of money by making only the minimum payments every month.

A personal loan will generally cost more in interest than a credit line, but less than a credit card and the required monthly repayment of capital requires strict budgeting.

Using a home equity loan or line of credit from your financial institution for renovations

A home equity loan or a home equity line of credit (HELOC) is similar to the credit options described above, but since the property is used as collateral, you will get a better lending rate than the above options. However, using home equity costs money at the outset, such as notary fees if your current mortgage doesn’t allow for an additional line of credit (umbrella mortgage). You therefore should assess whether the cost of the work is high enough that the interest savings compensate for the initial fees. Also, approval for a HELOC requires the same paperwork like the original financing (proof of income, credit verification, etc.). You must also meet the bank’s allowed loan-to-value ratio.

Refinancing a mortgage to finance renovations

Like a home equity loan or HELOC, mortgage refinancing is an option for people who want to do major work or improve their homes. The low interest and the spread of repayments over a longer period will allow you to keep saving and maintain your lifestyle during work.

In addition to fees, refinancing also requires you to fill out administrative paperwork and go through a credit investigation. This option may also be harder for some borrowers to access as mortgage regulations have become tighter in recent years.

Private mortgage to finance renovations

A private mortgage lender offers a solution that may be advantageous for financing medium- or large-scale renovations. The acceptance process is faster and simpler than the one used by major banks and credit unions.

A private mortgage is also more flexible because it can offer terms that are better adapted to the borrower’s situation and needs. Unlike conventional institutions, this type of lender doesn’t attach as much importance to criteria like the credit file when assessing a project. This can be very useful for borrowers who recently went through a somewhat difficult financial situation. Even if you are now completely back on your feet financially, banks may still be reluctant to finance your renovations.

A second mortgage with a private lender is by far the best option because it lets you borrow money to do the work without touching the mortgage you have with your financial institution. Once the work is done and your financial situation is resolved, you can try to get a conventional bank refinancing to repay the second mortgage.

Private lenders often have more decision-making flexibility and so can offer an alternative that’s more advantageous for many borrowers.

Doing a real estate flip: what you need to know to succeed in your project

How to flip real estate : Tips for sucess

Buying a property at a great price, renovating it with love, then reselling it for a profit – so many people dream of doing this! But real estate flipping can quickly turn sour if you don’t do it right.

So how do you go about making a real estate flip and succeeding?

Finding the right property to flip

To make a successful real estate flip, you have to seize the right opportunity. This is one of the most important things to know about flipping.

The right opportunity is often not advertised on the market. And it is often not in the hands of a real estate broker, either. Most of the time, you have to find it yourself. But where?

You can find the perfect opportunity in many places, such as:

a neighbor who wants to sell because of divorce, inheritance or relocation
a property with a 60-day notice
a property for sale by a bankruptcy trustee
a property that appears vacant or abandoned

Defining the essentials before starting your flip

To make sure your real estate flip is profitable, you need to buy the building below market value and then resell it for a profit as quickly as possible, usually within a year.

The profit on a real estate flip depends on 4 main factors:

initial purchase price
cost of renovations
resale price
costs related to resale

Roughly speaking, the profit on a flip is the difference between the resale price and all other costs associated with the project.

You must also consider carrying costs that you will have to cover for as long as your flip is not sold, such as interest costs on the mortgage, municipal taxes, school taxes, electricity, maintenance, snow removal, etc.

Calculating the costs of your planned renovations

Not all real estate flip projects require a lot of renovations. However, it is always very important to know in advance the extent of the renovations you will need to do, big or small.

Remember too that not all renovations are worth the cost. Some types of renovations will give you a better return on your investment than others. In short, don’t under-renovate or over-renovate. You have to renovate intelligently and just enough; otherwise, you run the risk of eroding your profit margin.

In addition, and even if you are a seasoned handyman, you will need to hire licensed professionals – plumbers, electricians, carpenters, etc. – to help with the renovations, because there are types of work the law does not allow you to do, whether you occupy the building or not.

In short, the costs of your materials and labour are very important to consider before saying “I do” to flipping.

Choosing the right location of the property to flip

Choosing the right location is also key to success in a real estate flip. There is much more real estate activity in urban areas. Ideally, your flip should be located in a market surrounded by services and activities.

And since you’ll be making multiple trips there, especially during renovations, it’s even better when it is located near your current property.

Tell yourself this: the closer your flip is to a desirable area, the faster it will sell. The location of your flip will be a major factor in determining its success. It is also one of the criteria used to assess a property’s market value.

Getting the right financing for your real estate flip

Financing a real estate flip involves choosing the right financial partner. There are 5 common ways to fund a flip project:

conventional financing from a traditional financial institution
financing through equity on your current property
partner investors
local capital (“love money”)
private lenders

Traditional financial institutions don’t like to fund real estate flip projects, especially when the building is, or has been, subject to mortgage recourse, is a repossession, or was sold by a bankruptcy trustee.

So, how can you finance your real estate flip without having to share your profits with a partner investor? The answer is simple: get a private mortgage!

Getting a private mortgage for your real estate flip

Access to a private lender is ideal for financing a real estate flip. In fact, this type of lender offers tailor-made loans for real estate investors who want to go all out. Their financing solutions, which can be up to 75% of the property’s market value, are ideal for real estate investors who plan to hold their property for the short term, as is the case with a flip.

The procedures for obtaining a private loan are also very simple – in fact, much simpler than those required by traditional financial institutions. It is even possible to apply for financing online in just a few minutes.

With a private lender, you won’t have to go through any credit or income checks. The only things that you will be asked to provide are:

the address of the property
the value of your property (price paid)
the desired loan amount
proof of down payment
the certificate of location (if you have it)
a list of work that will be carried out, as well as proof of the costs of this work

With a private lender, getting financing for a real estate flip is now easier than ever.

Real estate flipping – some final advice

So, still interested in doing a real estate flip? Before closing this article, here are some tips to ensure the success of your investment project:

do a pre-purchase inspection if you are not in a multiple offer situation
ask for at least 3 quotes for the renovation work
ask for a real estate appraisal to determine the potential value of the building after renovations
supervise the work, delegate, and surround yourself with competent and reliable people
location, location, location: choose the best possible location

Real estate flipping – yes, it’s possible to get in the game!

Making a real estate flip is a real adventure. And like any adventure, it is important to properly assess, plan and execute the project. After all, the success of your flip depends on it!

We hope you have enjoyed this article, and we invite you to contact us to discuss your flip project and financing needs. Together, we’ll help make your flip happen!

The 5 essential things you need to know to succeed in real estate flipping

Recent decades have seen an exponential rise in television shows about house flipping. It all seems so easy! And maybe someone close to you has made a short-term profit buying and renovating a property and then reselling it.

We hear a lot less about flips in which the profits do not materialize or there are even losses when the flip doesn’t go as planned. To avoid ending up in this category, here are the 5 most important things you need to know to succeed in real estate flipping.

1. Eliminate conditions at the offer to purchase

In a seller’s market like the one we are in right now (i.e. few offers and lots of demand), high-potential properties disappear from the market in less than a week and often in a situation of multiple offers.

This means that sellers receive multiple offers to purchase and often eliminate those with the most conditions and therefore a higher probability of the transaction failing. They are often willing to accept a lower offer that has no conditions attached.

2. Eliminate financing conditions

Traditional bank pre-approvals are not a confirmation of 100% viable financing. It often happens that after issuing a pre-approval, the bank denies financing for some reason, perhaps because certain expenses were not disclosed by the borrower at their meeting or because the bank discovers that the purpose of the acquisition is for flipping. As a private lender, we can issue a property-specific financing letter that guarantees you financing for the property without any underlying conditions.

3. Eliminate the inspection condition

If you are a seasoned real estate flipper, you probably have a very good knowledge of construction. You can therefore inspect the property yourself at the initial visit or at a second visit before making an offer to purchase. If not, bring your contractor to get an opinion on the building. If you are comfortable with the building, remove the inspection condition.

4. Draw up a budget and don’t overinvest in your property

The most common mistake beginners make in the flipping business is renovating using materials that are of too high a quality given the nature of the building and the area in which it is located. When deciding on the standard of work to be done, look at properties currently for sale and new constructions in the area. They will be your competitors when your house goes on the market. Do not install engineered flooring at $12 per square foot and a $10,000 granite countertop in a $250,000 bungalow! This is not what prospective buyers are looking for and you could end up suffering a loss instead of a profit.

5. Sell with a “superstar” real estate broker

Your strength is finding opportunities and renovating them in order to make a profit. Leave the sale to a real estate broker! They are pros at marketing the property you want to sell. Forget about “old school” real estate agents who still advertise in local newspapers! Choose agents with exceptional visibility on the web, like Gabriel Laflamme, RE/MAX Real Estate Broker, who will invest in your marketing with professional videos and photos. Forget too about platforms like Kijiji, Marketplace and DuProprio because less than 5% of transactions take place there. Plus they never generate enough traction to create multiple bids and overbidding on your property.

Need a private mortgage loan for your next flip project?

Apply online via our website or call us at 1 (877) 220-7738, extension 1.

Why is it important to have access to a private lender when doing a real estate flip?

It’s well known that traditional banks are not interested in providing mortgage loans to real estate investors looking to flip. The reason is simple: they are not a profitable customer base for banks due to the short duration of the loans involved. Real estate investors must therefore look for other financing options when seeking to acquire one or more properties for holding over a short time period. Whether it’s for the acquisition of a single-family home, a multiplex or a lot, private lenders are becoming an attractive option for those wanting to quickly seize opportunities in the market.

1. Who should use a private loan to make a flip?

If you’re in no rush, your profile matches what traditional banks look for and you’re comfortable with lying about the reason for the loan (if you say it’s for flipping, your request will automatically be refused), you can always try your luck at financing your flip with a traditional bank.

However, if you are a serious real estate investor and want to make a number of real estate flips, it’s essential that you have a private lender like Victoria Financial on your side. This will enable you to acquire various properties without the constraints of traditional bank financing. You can make offers without any financing conditions because we take the time to pre-approve financing for every project before you even make an offer to purchase.

2. The advantages of opting for a private loan for your flip projects

All serious real estate investors do business with private lenders in order to acquire the most desirable properties. Here’s why:

It’s much faster than a conventional bank. You can make an application in less than five minutes using our secure online form and get a same-day response. You can also reach us rapidly by phone to discuss your project.
It’s a simple process. There’s no need to go through endless paperwork and comply with debt ratios to qualify. The approval of our private loans is based primarily on the net capital available on the property.
Openness and creativity. Whether the property is vacant or requires major work, we understand that your goal is to get a return on your investment. We analyze your project from an entrepreneurial point of view in order to offer you the right mortgage.

3. Financing a flip – the secret ingredient!

Properties with the greatest potential for flipping never stay on the market for long. They often sell at a higher price and in less than a week. Having a partner like Victoria Financial will give you a head start over other potential buyers because we can provide you with a pre-approval to accompany your offer to purchase.

4.What does it take to qualify for a private loan for the purpose of flipping?

a. The down payment

In order to acquire a property with a private mortgage, you must first have a down payment of at least 25% of the purchase price. For example, if you want to buy a duplex in Montreal for $400,000, the required down payment is $100,000. You can use our mortgage calculator to determine the maximum possible financing for a property.

b. Funds for the renovations

You will also need to have sufficient cash available to finance the work to be done on the property. Make sure you don’t underestimate the funds needed!

How can I apply for a mortgage loan?

Apply online via our website or call us at 1 (877) 220-7738, extension 1.

Financing your flip is getting easier!

House flip pros will tell you that private financing is the way to go if you want to take advantage of housing market opportunities.

Are you dreaming of flipping a house that was either repossessed or inherited? Whether or not you have flipped a house before, do you need funding?

The key to financing your flip: Speed

Unlike private mortgage lenders, banks ask you to complete page after page of application forms and they take a long time to analyze your files. In the time it takes them to process your files, you will likely risk losing the building that you had hoped to make a profit from.

Flipping houses is a bit like investing in the stock market. You always have to be on the lookout and your have to draw more quickly than your competitors as soon as an opportunity presents itself.

If you go with a private mortgage lender, you can get a letter of approval the same day

Actually, you can get a letter of approval on the spot. Being able to make a purchase offer with no financing conditions will give you a competitive advantage.

Did you know that if you go through a private lender, you will be able to receive financing within a few days? Even if;

the property needs major repairs;
the banks have refused a loan based on your credit rating or because your debt-to-credit ratio is too high;
you have declared bankruptcy or have submitted a consumer proposal;
you have no capital, but you have other property assets and plenty of equity;
And if your file is well prepared, private financing will allow you to obtain funds in less than one week.

Do you know why financial institutions refuse to finance flips?

Banks don’t make a lot of money on short-term loans;
They hesitate when it comes to taking risks (i.e. a legal construction hypothec);
Banks are scared of the idea of being stuck with an empty house on which the renovations have not been completed;

Two words to remember: flexibility and simplicity

First, the process of obtaining private financing through Victoria Financial is much easier than going through a bank. Here’s all we need from you:

The address of the property in question;
A list of the work that needs to be done, as well a proof of funds required to complete the work.
The amount of money you would like to borrow;
The property value (the amount paid);
A certificate of location, if you have it;

Secondly, here are some general financing terms that you will encounter when you finance a house flip:

Short-term loan (6 months or more);
Financing for up to 75% of the market value;
Possibility of receiving 100% financing if you own other buildings and have plenty of equity to guarantee the loan;
Monthly interest-only payments;
No bankruptcy or insolvency records search, no credit check, no income verification.

Of course, certain conditions apply. The interest rate for private mortgage loan starts at 12%, a rate that often causes borrowers to hesitate.

Even if the role of the private mortgage lender is a passive one, the private lender has to be seen as a financial partner and not as a traditional capital source. Furthermore, going through a private mortgage lender will make it possible for you to flip more than one house at a time if several opportunities become available.

You might pay a higher interest rate, but if you are in a position to make a considerable profit when you sell the property you’re flipping, it really is worth the money.

Contact me via email at maxime.st-laurent@financierevictoria.com or by phone at 1 (877) 220‑7738, ext. 101. I will help you calculate the profit on your next flip.