Buying As-Is properties can be tempting, especially for those who do the renovation themselves. Every time you cut out the middleman you cut costs, but you also leave yourself vulnerable to risk. How do you protect your investments?
Can you pay cash? Many people start out working with hard money investors until they can buy with their own cash. If you’re saving the proceeds from your first few flips to pay cash, you might find yourself in this position. Hard money lenders function as cash in that they can generally close in a few days.
If you’re also on this end of the spectrum, meaning you’re a hard money lender, you’ll want to protect your money just as anyone would. You’re aware that there is risk involved. Because of this, you’ll want to see good ARV (After Renovation Value) numbers.
If on the other hand, you’re working on the other end and seeking out good investments, special care must be taken when investing in AS-IS properties. Unlike the conventional process, these homes don’t come with warranties. Be smart and protect yourself and your working capital by making educated decisions.
For instance, don’t put more money into cosmetic improvements than will appraise well according to comps in the area. That’s just like throwing your money away. Lenders won’t lend on properties that can’t be appraised. Unless you find a cash buyer who absolutely falls in love with the property and is willing to pay what you’re asking, you might have to eat some of your investment.
The way to make good use of your investment capital is to look at the big-ticket items in a potential investment property. Does the plumbing look good or are you looking at repairing pipes? How’s the roof? Be sure to check out the water heater furnace and furnace, plumbing, electrical panel.
Eventually, you’ll learn what to look for but until you do, protect yourself by scheduling a home inspection to identify any hidden defects. Typically you’ll find the same issues over and over again and figure out your renovation budget will get easier as you learn to memorize pricing. Even when a property is being sold As-Is, if you’re working with a Realtor®, he or she can still negotiate some things for you.
In the beginning, you’ll find it takes a little guesswork to put together your renovation budget, but it doesn’t take long to learn the ropes. You’ll find that all renovation budgets vary on the potential ARV of a property, and even though it might seem tedious to go through all the calculations this is a critical step. Again, it gets easier as you gain experience.