Real Estate Terms for New House Flippers

The real estate market seems primed to continue its bull run in 2018 and there’s never been a better time to get invested. The median price for new houses across the nation toppled over $600,000 last year and many cities across the country are seeing real estate gains greater than pre-recession levels. Home flipping is a great investment opportunity for savvy individuals who’ve researched the market. Of course, this doesn’t mean it’s for everyone. For first-time flippers, you’ve probably encountered a lot of jargon along the way that was confusing or foreign. Terms like caveat emptor and abatement or buzzwords like up-and-coming neighborhood are often thrown around, although you shouldn’t concern yourself with all of them. Here, we’re going to look at some of the most popular real estate terms used for home flipping and tell you what they mean. ARV After repair value is exactly what the name implies. It denotes the value of a home after repairs have been made to flip. Bridge Loans Bridge loans are actually another term for hard money loans. Hard money loans are a short-term financing instrument primarily used by home flippers to finance a short-term investment project. Securing a loan depends on the value of the property itself and the expected gains. Closing Costs These are costs that are either absorbed by the buyer or seller once the title has been transferred. They are incurred over the market value of a home and can include origination fees, title insurance, title search, etc. Comparative Market Analysis (CMA) This is an analysis of comparable homes on the market. Essentially, this lists the value of homes recently sold in the local area, houses currently sitting on the market, or houses that were previously on the market. These homes are alike in building size, renovations, and other characteristics, but don’t include the general condition of the home in its analysis. Contingency This a contractually binding term that prevents a sale from going through until certain conditions or contingencies are met. For sellers, this could mean that a house can’t be sold until a home inspection is conducted or the buyer secures a loan under a certain APR percentage. This is also commonly referred to as an escape clause in the contract. Distressed Property Houses where the owner cannot maintain or afford the property any longer are referred to as distressed properties. These are often listed at basement bargain price and sellers are very eager to sell. Junk Fees Junk fees are closing fees that are often inflated or exaggerated by lenders and brokers during the sale. These could include miscellaneous fees like application fees or credit report fees. Wholesaler A wholesaler will either buy a distressed property or one from a seller who is eager to sell. They flip them incredibly quick, sometimes so quick that they will transfer the contract to another buyer before the sale is closed. By agreeing to pay for the property beforehand, they profit from flipping contracts and don’t end up paying anything in the end. 70% Rule The 70% rule applies to fix’n’flip loans or purchases. Essentially, home flippers should pay for 70% of a property’s after repair value and then subtract the cost to repair the home from this amount. Essentially, if a home is worth $100,000 after repairs and it costs $20,000 to repair the house, you would only pay $50,000: ($70,000-$20,000).