America is obsessed with makeovers.  If you don’t believe me just look at your TV Guide; there are quite a number of shows dedicated to some sort of before and after appeal.  These shows have transcended the fashion industry and into the housing realm.  Haven’t you heard?  Flipping homes is all the rage. 

This rage isn’t likely to go anywhere anytime soon.  Let’s take a look from a potential investor’s perspective.

You see a little home on the corner with a for-sale sign.  The yard looks as though it hasn’t been tended for years, and what used to be gardens are now collections of overgrown bushes and plants.  The home’s blue coat of paint is flaking off and unruly vines cover broken or missing windows. 

You start to get excited.  This is it; this home is so ugly it has to be cheap.  You could actually afford this and just imagine what it could look like when you get done with it.  You won’t even have to hold it for very long, and you’ll make a fortune.

Even though I recognize the obvious appeal behind flipping houses, I’m still fascinated by the “flipping rage” that has consumed many real estate investors.  But many of these investors don’t know what to do next because they don’t have a financial plan.  And a financial plan is crucial in the flipping business.  You need to know where you are, where you’re going, and how to move in that direction.

Several potential flippers get stuck and cannot conquer that last step—movement.  They either can’t get started or can’t get finished.  The latter category may experience repairs running long; either because of poor planning on the investor’s part or an incapable contractor. 

Now, the first category of investors, those who can’t get started, are the ones who have trouble finding the right financing to get them going.  This can be a trying process, and most seasoned investors have been burnt several times before learning the proper lending channels to approach.

One option for the flipping savvy is a speculative (spec) loan.  This type of loan disperses money based on the selling price of the property plus the additional funds needed to complete renovations—rather those renovations are gut or cosmetic.  To oversimplify this entirely, let’s say your fixer-upper is only worth $140,000.  But once you put in $25,000 towards repairs and improvement, the home will be worth well over $200,000.  A spec loan will cover the initial buying price of $140,000, but it will also cover the $25,000 needed to fix the place up and turn a profit.

But do your research.  It’ important you find the right type of loan for your needs, and consequently, the right mortgage lender.  Look for someone who does these loans all the time, is completely comfortable with their inner-workings, and is going to be looking out for your interests.