Do you want to make money flipping houses without having to make repairs and upgrades? You can use your hard money loan to invest in a move-in ready home—also called a spec home. A spec home is a new house where nothing is broken and everything is already up to date.
Home construction companies routinely build high-quality homes with in-demand features, styles and functionality—but without a buyer. The appeal of move-in ready homes is similar to that of brand-new vehicles in an auto dealer’s showroom. In both cases, buyers forgo customizations to have something brand-new and beautiful all their own—right now.
Why spec homes are popular
What makes move-in ready homes appealing to flippers also attracts home buyers. The allure of a brand-new, move-in ready home is strong for many families.
But it’s often a matter of necessity rather than impulsivity or impatience. Sometimes people don’t have the luxury of waiting for the perfect house to become available or the time to update existing amenities.
Maybe a family’s main breadwinner had to take a job in a new city before they could find a house. Or a family just sold their current home or are moving out of a condo or apartment with only a month to find a new home. Sometimes a family has to establish residence in a community to enroll their children in a particular school district.
Spec homes eliminate the lengthy wait so often tied to new construction. Oftentimes, a family can do a complete walk-through one day, purchase the home, and move in just weeks later. That level of expediency is hardly ever found in custom builds.
How to get started
While it may be a more hands-off approach than renovating a property, flipping new houses still requires time, energy, and likely more money than you expect.
Before you get started in the business of flipping new homes, you have to make sure that you have the resources to take on such a project.
You’ll need a flexible monthly budget and the funds to purchase the property and pay for any extra costs like taxes, utilities, and so on.
Research the market
We recommend you enlist an experienced real estate agent who knows the area to help you find a property to flip.
Location is one of the first things to consider in any home building or buying situation, but it’s especially important for flipping. Look for areas where development is happening quickly and new jobs are easy to find. These areas will give you the best chance to make a good profit on a new house flip. Buyers there will be more interested in buying a ready-made, brand-new house, especially if they’re in a time crunch.
Find the right opportunities
Research local developers who are building in your area. You can find out information about their projects by looking online or talking to them directly. Once you have identified potential properties, you will need to conduct due diligence on each one in order to determine if they are worth investing in. This includes relevant market data such as median home prices and average days on market.
Find the right builder
For flipping new construction, you’ll want a builder experienced in move-in ready homes, as opposed to custom homes, which are built according to the owner’s preferences. An expert in spec homes knows where to spend and where to hold back for the best profit opportunities. Modest homes usually sell faster.
Lower initial capital
Finding the right builder can also help lower your initial investment capital. Builders often offer incentives, such as upgrades, design center credits, and even better interest rates for certain criteria. It might be using their mortgage company, building in a certain month, or even agreeing to a specific location.
Taking advantage of as many incentives as possible lowers your upfront capital and increases your chances for profit. So explore all of your options!
Design thoughtfully
When building a house for profit, don’t forget that you aren’t the homeowner. Features you may consider must-haves may not appeal to everyone. Rely on the experience of your real estate agent and your builder to design the home thoughtfully. Consider things like:
- Floor plans that are selling well.
- The type of family that will most likely live in the home.
- Where to spend the bulk of your building budget.
- The features that local buyers want.
- Selling prices of similar homes in the area.
Create a profile of the kind of buyer who will want your spec home and build with a specific end goal in mind.
If you’re building in an area with lots of families, an open-concept home with plenty of bedrooms may sell well. In a burgeoning city filled with millennials, focus on entertainment spaces. A master bathroom can drive up the selling price.
Get financing
As with most real estate investments, a long-term conventional loan is likely out of the question for a spec home. Hard money lenders like Black Brook Capital are an ideal funding option—approving and issuing short-term loans within days. We provide quick access to proof-of-funds letters to show builders that investors are financially able to purchase the property.
Hard money loans do have higher interest rates than conventional loans due to the shorter term and higher risk. But the debt can generally be settled once the move-in ready home has been sold—usually within a few months.
Because hard money lenders aren’t bound by the same criteria as financial institutions, borrowers don’t need high credit scores. While a 20% down payment is common, the loan terms are more flexible than traditional loans.
Building a slush fund
Once your builder gives you a price, make sure you take around 10 to 15 percent of that price to keep on hand in case of delays and issues. If you sign a contract, the price is set in stone.
Still, you might have unexpected land issues or find yourself closing on and carrying the mortgage for a few months until it sells. You can consider your slush fund as sort of a “down payment.” It might eat into your profit, but it can help you stay afloat while awaiting a sale.
Marketing
The last step is marketing. Having an effective marketing strategy ensures you can find buyers quickly so you can maximize profits from each flip.
If you want to avoid real estate agent fees, you’ll need to sell the house yourself which, is even more work.
Alternatively, it’s advisable to find a real estate agent or agency that offers a flat fee. Then you can get your listing on the most popular MLS in the area. This can save you about 40% in real estate agent commissions, and every bit adds up.
Conclusion
Flipping new move-in ready homes definitely has its benefits. Building and selling a brand-new home appeals to a certain type of home buyer and, with a tight turnaround, could net your profit quicker than an existing build.
Still, it’s not a no-brainer. Consider your options. With the right builder, a spec home flip might be your best bet for an investment property – no demo needed.
If you’re interested in making money with move-in ready homes, contact Black Brook Capital today. As your financing partner, we will provide expert guidance to turn your vision into reality.
