What real estate investment earns 150% return? Fix-and-Flip!
In our never-ending crusade to bring awareness to the U.S. residential real estate market, we want to introduce you to the first part of our Launchpad Series – Fix-and-Flip. In each part of this series, we will be sharing more about the new programs we have to offer and why you should be excited about them.
What’s Fix-and-Flip or Fix-and-Hold?
A Fix-and-Flip home is when an investor purchases a property, “fixes” (or renovates) it up, then “flips” (sell) it for a profit shortly after. The investor can also choose to keep and rent it out at a higher rental amount than they would have received in its initial state; this is called a Fix-and-Hold.
How is it used?
A Fix-and-Flip is often used for investors who have a good eye for value, feel comfortable with the intricacies of construction, and have knowledge of a specific area. The U.S. property market is red hot right now, and investors are interested in getting involved. However, many may not have sufficient capital to go the buy-to-rent route as they cannot afford a market-priced property. In that case, purchasing a discounted property, fixing it up, and selling at a higher price would be the perfect solution. It would also be good if investors are well-versed in the area and are able to spot undervalued properties accurately. The “get the worst house on the best street” strategy has resulted in many success stories.
The Market
Fix-and-Flip is more popular than ever. During the first quarter of 2021, 32,526 single-family homes and condos were flipped, and the average house flip generated a gross profit of $63,500! Given U.S. foreclosures are +5% month-on-month, we can expect a larger share of discounted properties to enter the market, meaning that it is prime time to snap up low-cost properties for flipping.
The average time to flip a house is also at the lowest level since 2013, significantly reducing holding costs (recurring costs that you spend from the time you purchase a property until you sell it). Furthermore, in the current low-interest-rate environment, the U.S. for-sale housing market has been experiencing record increases in prices; this translates to higher revenue when selling the flipped property. Overall, low costs and high revenue makes the fix-and-flip market very attractive to investors now.
The Problem
Historically, Fix-and-Flip and Fix-and-Hold loan programs were only available for U.S. citizens who were living in the U.S with strong U.S. credit – until now! Most overseas investors have never considered Fix-and-Flip because of their distance from the market and how daunting renovating a home in a foreign land seems. However, in reality, the project is not as formidable. The U.S. is very transparent, and there are many reliable general contractors in major cities that can help you with flipping your home. In places like Pittsburgh (deemed the best market for house flipping in 2021), contractors are plenty (J Francis Company, Main Street Renovations, etc.). What is better is once you find 1 reliable general contractor, they will likely have good recommendations for others (e.g., plumbers), and very soon, you will have a team that will take care of home flipping for you.
Our Solution
Let us introduce – America Mortgages Fix-and-Flip loans!
Our AM Fix-and-Flip program is available to both Foreign Nationals as well as U.S. citizens living abroad! Our Fix-and-Flip loan programs have a unique twist; America Mortgages can structure these mortgages, allowing our clients to obtain the ARV (after-repair-value) financing required to acquire and renovate. We also have the knowledge and experience to refinance the property, once completed, to a long-term standard mortgage.
How it works
Let us walk you through the process. Let’s say Mr. Smith, a foreign national living in London, wants to buy a house in Pittsburgh with the intention of fixing and selling it. The house is in decent condition, so it will only need standard rehab. He obtains an AMNR Fix-and-Flip loan.
The table below shows a breakdown of the Costs, Fees and Income Potential.
| Fix-and-Flip Property sale price | $100,000 |
| Rehab Costs | $20,000 |
| Down-payment | $15,000 |
| Max possible amount financed using AMNR Fix-and-Flip loan. | $85,000 (85% LTV) |
| Interest rate | 8% p.a. |
| Monthly interest rate costs | 567 |
| Holding or Carrying Costs (5-month estimate) | 5,000 |
| Closing Costs | $5000 (Conservative rule of thumb: Closing costs is 5% of property sale price)/td> |
| Total costs after 159 days (the average time to flip a house in 2021) | $132,835 |
| After-Repair-Value | $222,500 (Average house price in Pittsburgh) |
| Potential Profit | $89,665 |
| Return on Investment (ROI) | 67.05%!! |
We see that Mr. Smith earns a whopping 67.05% ROI! This is high compared to other forms of investing, such as buying stocks, which earn you a return of 10% per year on average. Even though, in reality, there may be some other associated costs that can decrease one’s potential profit, it is still much higher than other alternatives. In the fourth quarter of 2020, the average ROI was slightly lower than the one in our above example but still relatively high at 40.3%.
Given how high the ROI is, many investors have already contacted us regarding this loan product.
Check out our case studies section on our website where we highlight our AMNR Fix-and-Flip scenarios.
To really drive home the point on why you should care about our new product, home flipping is good because investors do not need to be concerned about selling the property given the ample demand for Fix-and-Flip properties. Many home buyers want to purchase a home that is already in a liveable condition because it saves them the effort of doing refurbishment works. Homebuyers also prefer residing in more established metropolitan areas, but the scarcity of land in these areas often means there are few new housing projects. As a result, most turn to Fix-and-Flip projects because it gives the feeling of having a newly built home.
Get in touch with us today to find out all about our AM Fix-and-Flip program for Foreign Nationals today! www.americamortgages.com