Tag: hard money loan denver

One of the best uses of hard money loan programs like Indicate Capital, is for investing in fix and flip real estate properties.  But remember, lots goes into the process of buying, rehabbing a home, and flipping it back onto the market.  A fix and flip project focuses on rapidly expanding the value of a property through very targeted remodeling.  You have to figure out the budget to complete the home, who will do the work, how you will secure the home, and what your backup plan is if it falls through.  It is possible to make a great deal of money with fix and flip investments in Colorado but there are precautions to take into account.  By setting an accurate budget for your remodeling projects and completing as quickly as possible, it is possible to add significant value to the structure.  The longer the project takes, the lower the profit will be.  Below are tips Indicate Capital suggest fix and flip investors take into consideration in order to get the most out of your real estate investment.

Calculate ARV

ARV – After Repair Value, helps determine if a property is a worthwhile investment.  ARV represents the total home value after all renovations are done. The difference between your “as-is” property and the ARV is your potential revenue. To measure ARV, look at homes similar in age, size, square footage, room count and location, ideally within a mile of the target property.

Plan for Potential Risk

There are always risks associated with a real estate investment and not all flips are going to work out perfectly.  You may find a perfect home, have the budget planned out for the renovations, but what about the hidden problems that aren’t apparent till after you begin demolition?  By planning ahead and having a reserve fund for each flip, you can give yourself a safety cushion to fall back onto in the event a fix and flip becomes a flop.

Budget Properly

Real estate flipping expenses can grow unexpectedly if you are not careful. To estimate repair costs, get bids from multiple contractors. If you are planning to perform some renovations yourself, invest time while shopping for your materials. Indicate Capital suggests adding 10 percent on top of your best budget estimates to account for the unexpected.  Also, don’t forget about closing and holding expenses.   Closing costs can be quite challenging to estimate in advance. It is not unusual to spend 2 percent to 5 percent of a house’s value for closing. Costs can be reduced by negotiating concessions or managed through favorable financing. To budget accurately, get several estimates for total closing costs. Don’t forget optional but desirable extras such as a home inspection.

Work with Reputable People or Consider a Partnership

It is important to find good people to work with on your real estate projects.  Find someone who understands the industry, is experienced, and can be trusted to complete the task they are assigned.  Partnering with another investor substantially reduces your risk.  Although this will inevitably reduce profit, it can be worthwhile. In most markets where fix and flip is taking place like Denver, there is a thriving community of real estate investors. Working together can mean success for all instead of costly competition.  In the end, if you are working with someone be sure to work together as a team for the same end goal.

If you have questions or want to talk before purchasing a fix and flip, let us know.  Contact Indicate Capital.

There has been a lot of talk, discussion and speculation on the current status and direction the real estate market is taking right now. We saw things slow down quite a bit during the month of November 2018. In December, things picked up a bit, and during January 2019 we have seen quite a bit of loan opportunities. As Denver’s premier lending company, our team at Indicate Capital works very hard to stay alert and aware of the market. At this point we believe one thing is certain – there is a not a lot of clarity as to how 2019 will look, and, most likely, it will be a flatter year than previous years.

The Denver area has had nearly seven years of very rapid growth and expansion. There are many factors driving the growth Denver has experienced for so long. We have seen a very strong population expansion, which has driven much of the demand for housing. Seven Years ago, on a national level, Denver homes were relatively affordable – and even cheap in some cases. Today, the picture looks much different than it did coming out of the Great Recession. Denver has become a top-tier market, meaning it is attracting jobs, large companies, and therefore more investment from institutions. This has driven the development of new apartments throughout the urban core and much of the housing development in the surrounding area. The main issue facing the Denver metro market is affordability. Wage growth has not kept pace with the cost of housing. All of this coupled with the political landscape both federally and at the state level ranging from the federal government shutdown, the Fed raising interest rates, and other trade issues have all caused for increased uncertainty in the market in general.

We expect to see the Denver real estate market moving towards a more “normalized” market. We do not plan to see the same value appreciation that we have experienced over the last few years. Construction costs continue to be so high that new development projects are very difficult to make “pencil”. This holds true in both the commercial and residential space. Both asset categories have seen a very strong market over the past seven years, and rental rates have grown dramatically across the board. We expect this growth to slow over the next year.

Indicate Capital expects there to be very strong demand for private bridge loans as banks continue to become and more tentative in their lending. Additionally, banks have been primarily lending on real estate during this boom period, and their balance sheets are “full” in that asset category per their regulator guidelines. At Indicate Capital, we also look at alternative uses or sources of cash flow from the investment real estate assets we lend on. This could include different tenant types in the commercial spaces, and rental income on projects intended for resale.

Overall, the market will eventually move into some sort of normalized pace and there may be a bit of a slower sales cycle for the homes and projects Indicate Capital lends on. We do not have a “doomsday” outlook on the Denver real estate market.