As a NJ Real Estate Broker I work with all kind of buyers in my day to day activities. I work with move up buyers who are looking for a little more space, downsizing buyers who just sent the kids off to college and now need less spaceand let’s not forget the first timers who are soooo excited to purchase their first home! All are in different stages of life but have one common goal…They are on the house hunt!
Recently, I have met with investors who are looking to climb that property ladder and invest in rehab and resale properties in our area. However In our area we have homes that range from 250k-1 million+ so its not your typical 50k purchase, 50k rehab and resale for 250k, its a much higher risk involved.
I met an investor who purchased a home early this year utilizing “Hard money”. If your unfamiliar with the term hard money; here is a quick explanation. A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by the value of a parcel of real estate. Hard money loans are typically issued at much higher interest rates than conventional commercial or residential property loans and are almost never issued by a commercial bank or other deposit institution.
So this investor purchased the home for 285k with hopes to renovate the property for around 50k and thought that he would be able to resale for around 450k since the market is Super hot, so if you were keeping up with the numbers that’s a potential profit of 115k (now that’s a great incentive to take the risk) but here’s the problem; He struggled with the construction and had many permit issues and now the housing market continues to be on a slight decline and he has been on the market for 110+ days. To make matters worse, now the hard money lender (the one supplying the actual money) is calling and looking to collect. Not to mention the monthly carrying cost, taxes, insurance and budget overages has not only sunk his bottom line but has caused the investor to go into his own pocket to make due. He got in over his head and with no more money left…he has quickly went from an investor to a distressed property owner.
We all watch HGTV and have seen flip or flop, fixxer upper, home town and the property brothers so we know it can be done but if you are new to investing then it is wise to secure the right team, have your contractors ready and FIRST & FOREMOST secure an exit strategy. It’s very easy to lose it all trying to flip your life.