Buying A Home
JaydenUSR
member
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Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
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Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
Buying a Home And reselling it
I would like to know if I could buy I home with 20% down do minor fixes and reselling it could I do that or will I need to take out a loan and pay that in full in order to sell it?
Re: Buying a Home And reselling it
You do not need to be able to pay off the entire loan before you can resell it. The money gained from the sale will first go to whoever owns the mortgage, to finish paying off the loan. Then, you get back what you paid into the loan, and profit (if there is any left).
What you are talking about is usually called "flipping" a home. There are several ways to go about it, so you will definitely need to do your research, and make sure that you know what option is best for you.
One thing that flippers do is they find cheap homes that would not be approved for a conventional loan (lenders will not give you money to buy a home if the home is falling apart), and pay in cash (meaning, they pay the full amount for the house, and don't take out a loan at all). The flippers then repair and/or update the home, and sell it for profit. This option requires a lot more money upfront, and is much more involved than just doing a few "minor fixes."
Another option that home flippers usually try, is they find homes that are in good structural shape (so they would be approved for a conventional loan), but needs a lot of updating. Houses that need a lot of updates will typically have a lower value than a fully updated home, and will be more difficult to sell - so you can sometimes get a good deal. The flippers take out a loan, fix up the house, and sell it for a profit. You have to be careful doing this kind of flipping, because it can be really easy to spend more money than you will make in the sale. Plus, you run the risk of over-improving the house for the area, making it difficult to sell, or preventing you from recouping some of your upgrading costs. Your profit in this type of flip can often be determined by the housing market for that specific location.
I think some home flippers take out construction loans. I've never taken out this type of loan, so I'm not sure about all of the details. My understanding is that you can purchase a house that is in need of repairs, and borrow extra money to make those repairs. I believe that with these loans, there are a lot more restrictions and deadlines placed on when/how repairs are made.
With any house sale, there are going to be closing costs, which can typically range from $1,000 to $6,000 depending on your lender, loan, and the cost of the house. The closing cost is money that you will not get back after you sell the house - and when you sell the house, you will have to pay more closing costs again, for the second sale.
While you repair the home, you also have the cost of repairs, inspections, utilities, property taxes, insurance, and making payments on the mortgage. When you resell a house quickly, the home won't have time to appreciate in value, and depending on the market, could go up or down in value by any degree.
It is possible to purchase a house, make repairs, and resell it for a profit. Although, you will probably have to do more than just a few minor fixes, and you have to be very smart about it. Before you buy any house, you would have to make sure that you know (to the best of your ability - there's no guaranteed way to predict the market) what the house is valued before repairs, what it will be worth after repairs, what repairs are needed, how much all of the repairs will cost, your closing costs, and how much you will need to spend while you own the house (taxes, utilities, insurance, etc.). Then, add a BIG "spending buffer" for unexpected repairs or delays.
Whatever you do, tread with great caution. Many people have tried to break into the house flipping business, and failed. Sometimes it's something they did wrong, and sometimes it's because of changes to the market that they can't control.
Do you have a background in construction - DIY etc.
Do you know what comps in the neighborhood have as standard features? (type of flooring, counters etc) - you do not want to make this the most expensive house on the block.
Flipping a house is not for the weak of heart ---it is not as easy as it looks on TV.
In our area a good prospect for flipping is snapped up in the first day or two on the market by someone in the building trades.
Definitely speak with a realtor about the housing market for that specific area. If it's in an undesirable location, then you might have difficulty selling it no matter how well you fix it up. It actually might not hurt to speak with several realtors, because some only see "sale!" and won't be honest.
Of course, before you buy any house, you should also get it inspected. It's not a guarantee that you will know about every little problem, but it will give you a better chance of uncovering hidden damage.
There are a variety of opinions when it comes to doing cosmetic fixes for a house, like painting. I would say, only paint if absolutely necessary - if the walls are filthy, you need to remove paneling, or they need minor patchwork, and if you do, choose a neutral color.
Know the codes for your city. In our area, we aren't allowed to fix more than about a shingle's worth, without a permit. Big items, like roofs, are best left to the professionals. Depending on your area, you also may need a specialized inspection for the roof after any work has been completed.
Flipping houses can be fun and profitable. You just need to be very wise about your purchases and repair choices. Do lots of research first!
Exactly!
Have you had the house inspected? What problems are there?
How much will each of the repairs or upgrades cost (materials, professional repairs, inspectors, your time, etc.)?
How much will you have to spend on interest/taxes/insurance/utilities every month that you own the house?
How much will you spend on both closing costs (to buy, and to sell)?
How much will you reasonably be able to sell the house for after you fix it up, and how fast is the market turnover for the area?
Ask realtors, get quotes for professional repair work and inspectors, research DIY repair costs, get insurance quotes, find out tax and utility rates, etc. You won't be able to get the exact amount down to the penny for a lot of these, but you can at least get a good estimate for their expected costs.
If the amount that you can realistically expect to sell the house for surpasses all of the combined costs, plus a little extra for unexpected repairs or delays (and by enough to make all of your effort worth it), then proceed.