Flipping houses can be a very lucrative endeavor. There are many different strategies that can be utilized to buy a house. Regardless if you will buy a house and get a mortgage on it or if you pay cash for it, you need to be able to understand how mortgages work and how you need to structure deals so financing will be available. Even if you pay cash for your purchase, when you go to sell the property, the buyer will need to get a mortgage. Knowing how mortgages work, what the different terms means and how someone qualifies for a mortgage, can make the difference between escrows falling thru or closing.

There are few terms that you need to know that will assist you to understand the whole process:

Appraised Value: This the value that a real estate appraiser things the property is worth.

Comps: In order for an appraiser to determine the value of a property, he needs to identify comparable properties or comps, that are similar to the subject property and then compare them. Since 2 houses will never be absolutely the same, the appraisers job is to make adjustments on any differences between comps and the subject property. So comps are similar houses in the immediate area that will be compared with our subject property.

Tax Assessors Value: Each house is required to pay property taxes to the county or city that the property is located in. The way these taxes are determined is by taking the value that the assessors office has assigned to the particular porperty and multiply it by the tax rate. These values are often very wrong. In an appreciating market, these values will be a lot lower then the real appraised value. IN a declining market, these values will many times be higher then their appraised value. Never use the Tax Assessors Value as a way to calculate the true value of a property.

Mortgage or loan: A loan to finance the purchase of real estate, usually with specified payment  periods and interest rates. The borrower (mortgagor) gives the lender (mortgagee) a lien on the property as collateral for the loan.

LTV: This term stands for loan to value. It is a ratio, or a percentage and it compares the loan on a property to the value of the property. So if someone buys a house for $100,000 and gets a loan for $80,000. The LTV is 80%. That means that the loan is equal to 80% of the value of the property or purchase price, whichever is lower! Something very important to be aware of. If you purchase a property that lets say is worth $125,000 but you are buying it for $100,000, for LTV purposes, the LTV will be based on the purchase price. So if you are planning on getting an FHA loan at 96.50% LTV, the value that will be used is $100,000. On the flip side of that, if you buy a property for $100,000 but the appraised value comes in at $90,000, the LTV will be calculated of the $90,000. So, keep in mind that for LTV purposes, which is used by all financial institutions, the value is the lower of appraised value or purchase price.

You can make money by buying a house and then selling it quickly for a profit. This is known as “flipping” the property. However, the buying process can be complicated and if you miss a step, your profit could evaporate. We will show you what it takes to obtain the loan to flip a house and fill your pockets.

First you must decide what mortgage payment you can afford. You will be responsible for the monthly costs of the house until it is sold. How long the property is in your name will depend on your marketing ability and the number of available consumers.

Next, understand that you have rights as a borrower. Do not let unscrupulous lenders take advantage of you. Remember that you are the customer and in control of the situation.

You must explore all of your lending options. There are many creditors who want to give you money. Shop for the best deal.

In many states, there are programs to help home buyers with down payments. Additionally, look for assistance from government departments such as the Bureau of Indian Affairs or FEMA.

Now you are ready to look for a property to flip. Using a real estate agent, you must decide if you want a house ready-to-sell or a fixer-upper.

It’s time to make an offer to the owner. Be prepared to bargain, as there may be a counter offer.

Before you commit to buy, have the property inspected to avoid unfortunate surprises later. This should be paid for by the seller of the property.

Since having homeowner’s insurance is mandatory for a loan, research companies and their rates.

Finally, you are ready to go to the closing meeting and sign documents.

For many people, the process of flipping a house can seem daunting; however, by following the steps listed above, it is possible to avoid several common missteps and instead make a profit.

As an investor, the importance of a Professional Home Inspection cannot be emphasized strongly enough.  First and foremost, seek out the most reputable Inspector to which you have access.  Jimmy-Bob down the road may have built a house or two on his own, but that by no means makes him an expert.  An Inspector with experience and knowledge will always be your best bet and will give you honest and reliable information.  A reputable Inspector will also be willing to provide references on his previous work.

A Professional Home Inspector will cover several major areas for any home being bought or sold.  Several are as follows:

Routine interior inspection

This will generally cover the basics of appliance function, water fixture function (in bathrooms this will include seeking out mold and/or mildew), searching for leaks or evidence of previous water damage, and operation of doors and windows. A check of the level of the house is also included in this, as a problem with doors or windows can be a sign of sinking.

Basic electrical inspection

This will cover obvious problems, but the inspector will be aware of code violations and alert you to any present.

Heating/Cooling inspection

Proper operation of each unit, your Inspector will tell you if the unit can expect a long life or is nearing a necessary replacement, and if the unit present is rated as an adequate size for the square-footage it is servicing.

Plumbing inspection

Does the installation meet code requirements and is it in good working order?  The Inspector will test for leaks and visual signs of pre-existing leaks or faulty fixes.

Actual construction of the home inspection

An Inspector will alert you to any shoddy construction shortcuts.  The roof/roofline will be checked for proper installation, which will include flashings to keep water away from potential leak areas, the actual roofing materials’ condition and will the particular material need to be replaced soon.

Foundation inspection

This will depend on whether you have an actual basement or crawl space.  In either case, an Inspector will be looking for dampness, leaks, cracks, molds and mildews and pest infestations.

As a home seller or buyer these areas are of the utmost importance in a smooth transaction.  A Professional Home Inspection fee has a wide range, but whatever the fee, it is well worth your peace of mind.

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