How you start your fix and flip project is just as important as how you intend to finish it. Knowing your exit strategy and planning ahead for it is integral for a successful real estate investment project.
As a real estate investor purchasing a distressed property, you essentially have two basic exit strategies to choose from. Each strategy comes with associated risk factors to consider and things to think about before jumping into a fix and flip or buy and hold project.
Flip to Sell
The biggest thing to consider when you purchase a fix and flip property with intentions to sell it upon completion is the marketability of the property. Consider the location. Is the property near a busy road, fast food restaurants, dumpsters, graveyards, etc. Think about who the end buyer could potentially be. Consider factors such as the school system where the property is located, the time of year that you intend to list the property, and the forecast for the future of the neighborhood and surrounding areas.
Absorption rate is another piece of the puzzle to take into consideration when strategizing your fix and flip project. Absorption rate is a term most commonly used in the real estate market to evaluate the rate at which available homes are sold in a specific market during a given time period. It is calculated by dividing the average number of sales per month by the total number of available homes. Make sure that you plan adequate time to complete your project, list and sell the property, and pay back your lender.
Renovate to Rent
Many new investors get started using the BRRRR Method: Buy, Rehab, Rent, Refinance, Repeat. Using this method, your exit strategy would be to “buy and hold” with intentions to rent and refinance.
Things to consider include bankability. Make sure that you are positioned with the right type of lender that can handle the right type of asset class and that you meet all of the necessary requirements needed to qualify with that lender.
While Alpha Funding doesn’t charge prepayment penalties or require any loan seasoning, certain takeout lenders do require different seasoning periods. The seasoning may vary from lender to lender so understanding what is expected of you on the back end, prior to jumping into the project, is essential.
These are just a few concepts to think about as it relates to your exit strategy for your fix and flip project. Failing to plan is planning to fail. The key to success is in preparation. Having a plan and a contingency plan will see you through to the end.
Let’s take a look at your next project. Alpha Funding Solutions offers the best combination of rates, leverage, and service in the industry. Contact us today to start the conversation at 732-657-2014 or www.alphafunding.com.