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Common Misconceptions About House Flipping

September 25, 2018 by Kay Monigold

Common Misconceptions About House FlippingReality TV shows have energized everyday people to dive into the real estate market and make money flipping houses. The dramatic presentation and profitable end results make the industry seem like a sure thing. But house-flipping, like any industry, has its share of challenges.

Television often props up ratings by showing industry pros overcoming adversity and getting a big win. But reality, unlike Reality TV, is filled by behind-the-scenes unknown obstacles. While house-flipping has emerged as a viable niche profession, these are some of the common misconceptions entrepreneurs may want to consider before wading into the business.

Perfect Properties Are Available

On television, the home-flipping team often settles on that perfect property that will yield amazing results. It’s important to understand that’s a Hollywood formula designed to improve viewership.

In reality, the perfect home is like finding a unicorn. Most flipping projects deal with less-than-perfect properties. What remains important for home-flippers is that the property enjoys structural integrity and the basic elements are in place.  

Projects Run On Time

Watching a home-flipping show makes the process seem quick and easy. After all, many of the shows run between 30 minutes and one hour. Your project time will be considerably longer.

Starting with a listing search through the initial buy, even industry insiders spend months securing a property. After that, the permitting process can be onerous and renovations are commonly met with unforeseen setbacks. Whether you discover mold behind walls or structural issues, remodeling generally experiences delays. Once you get everything copacetic, inspection waiting periods can be excessive. Projects rarely run on time.

Construction Budgets Are Just Math

Watching a TV personality whip out a calculator and add up remodeling costs makes it look simple. There are square footages, materials, labor and other tangibles. Home builders and remodeling professionals are quick to dispute such simplicity because too many “intangibles” exist.

Consider replacing the clapboard on the exterior of a home. One might expect to calculate the square footage and order an equal amount of material. But an experienced contractor might tell you to start by ordering an additional 10 percent to account for waste. That’s because a percentage of material that gets cut might not be reusable.

After accounting for that 10 percent, add another 10 for human error. Many types of clapboard require builders to set the commercially-cut end to the interior only. When inexperienced workers make erroneous cuts, increased waste can be produced. This theme runs across a variety of materials and other aspects of construction. It’s unlikely your crew will be filled with 25-year veterans. Mistakes are more common and costlier than you might expect.

ROI Can Be Measured Accurately

Beginner home-flippers tend to look at the cost of the property, add updating costs and the average market value of similar homes as the basis for determining return on investment (ROI). But selling prices can be more fickle than one might expect.

Today’s home buyers are looking for certain things from newly renovated properties. The math no longer amounts to adding total rooms, bathrooms, square footage and location. While the country is in the midst of a seller’s market due to a significant inventory shortage, home-flippers would be wise to calculate ROI based on a sliding scale.

If the property lacks the conveniences favored by Millennials or other groups buying up homes, it could sell for less than expected. That’s another reason why home-flippers are wise to enlist the guidance of a local real estate professional to gain a reasonable grasp on home trends and pricing.

Don’t forget to calculate in the costs of financing your project. Most often, people utilize a lender to help carry costs. It’s important to meet with your trusted mortgage professional to find the best terms for financing prior to starting your new endeavor.

Filed Under: Real Estate Tagged With: Home Improvement, House Flipping, Real Estate

What’s Ahead For Mortgage Rates This Week – September 24th, 2018

September 24, 2018 by Kay Monigold

What’s Ahead For Mortgage Rates This Week – September 25th, 2018Last week’s economic releases included readings on the NAHB Housing Market Index, sales of pre-owned homes, and housing starts. Weekly readings on mortgage rates and first-time jobless claims were also released.

NAHB: Home Builder Confidence in Market Conditions Holds Steady

The National Association of Home Builders reported an index reading of 67 for September, which matched August’s reading. Growing concerns over impacts of tariffs on building material costs have slowed builders’ confidence in current and future market conditions.

Components of the NAHB Housing Market Index include readings on current conditions, which gained one point to 74; builder confidence in market conditions over the next six months gained two points to a reading of 74. The HMI reading for buyer traffic in new housing developments was unchanged with a reading of 49. Readings for buyer traffic are typically below the benchmark index reading of 50. Readings over 50 indicate that most home builders are confident about housing market conditions.

Builder confidence is considered an indication of future housing supplies as builders may adjust their construction plans on market conditions and building costs. The Commerce Department reported higher housing starts in August with a seasonally-adjusted annual rate of 1,282 million starts. Analysts predicated a rate of 1.249 million starts based on July’s reading of 1.168 million starts.

Sales of Previously-Owned Homes Unchanged

The National Association of Realtors® reported sales of previously-owned homes held steady in August, with homes sold at a seasonally-adjusted annual rate of 5.34 million sales. Analysts expected a reading of 5.37 million sales. Home sales have faced headwinds in recent years with high demand and low inventories of available homes driving up home prices faster than inflation and wage growth. Recently rising mortgage rates also impacted affordability and sidelined would-be buyers with moderate incomes.

Mortgage Rates Rise; New Jobless Claims Fall

Freddie Mac reported higher rates for fixed-rate mortgages with the average rate for a 30-year fixed rate mortgage rose five basis points to 4.65 percent. The average rate for 15-year mortgages also rose by five basis points to 4.11 percent. Rates for 5/1 adjustable rate mortgages dipped by one basis point to 3.92 percent. Discount points averaged 0.50 percent for fixed rate mortgages and 0.40 percent for 5/1 adjustable rate mortgages.

First-time jobless claims fell to 201,000 claims filed as compared to expectations of 208,000 new claims filed and the prior week’s reading of 204,000 new claims filed. This was a 49-year low; analysts cited Hurricane Florence and overall economic expansion.

What‘s Ahead

This week’s scheduled economic news includes readings on home prices from Case-Shiller, new and pending home sales and inflation. Weekly reports on mortgage rates and new jobless claims will also be released.

 

Filed Under: Financial Reports Tagged With: Financial Reports, Interest Rates, Mortgage Rates

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Kay MonigoldKay Monigold
Owner/Mortgage Broker/Residential Mortgage Loan Originator
NMLS#1086176

Steven LoweSteven P Lowe, Sr
Residential Mortgage Loan Originator
NMLS #1085638

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