5 Money-Saving Strategies to Flip a House
Flipping a house can be a lot of fun to do if you enjoy extensive and intensive do-it-yourself projects. Even better than having fun playing house is if you can profit, right? You don't have to choose though, if you do it right anyway! These money-saving strategies below are designed to help you accomplish playing with your creative side and coming out ahead in your investment. So, let's get started so you can get flipping:
Tip 1: Research and Plan
Instead of R&D (Research and Development), let's call this part R&P (Research and Planning). Researching and then making a plan from that research is the very start of any house flip if you want to be successful at it. The first part of research to do is on yourself. You're going to research your financial readiness.
To be financially ready to flip a house means making sure that your credit score is excellent, and that if needed, you have plenty of cash on hand, or at the very least a way to get that cash quickly, such as through a home equity line of credit. If you're not ready, that's where planning comes in. Make a plan to get ready.
Aside from researching yourself is researching your investment. This involves learning about your local real estate market and discovering which locations you should be house hunting in. Keep in mind that although you may find a great price on a home in a bad area, it doesn't mean it will be a good investment. Location is definitely a very big key in reselling a house quickly. It's better to spend a few dollars more in a good location, say industry experts, than buy a home in a bad location and not be able to sell it in time to profit.
While researching location, also research what the schools are like (a good selling point), and how the employment growth is in that area and use these in your selling plans. These are both good indicators of how desirable the location is.
Tip 2: To Flip or Not to Flip?
Once you're in the right location, you can start searching for a house. Look for those that are in sound condition, meaning that you don't have to rebuild it -- you're just going to fix it up a bit. Bringing it up-to-date and cleaning it is what you want in a home you intend to resell, not an entire redo from scratch.
To save a lot of money in potential things you may not see yourself, you should have someone inspect it before you make an offer. If you're not able to do that due to time restraints, make yourself a checklist to go through, and if anything smells bad (literally, even) walk away.
Quick "When to Walk Away" Checklist:
- Water damage in the ceilings and along walls
- Wiring and/or plumbing is bad or not up to code
- Major, and current, insect damage
- Major foundation cracks
- Roof in need of repair
- Dry rot in the walls (interior or exterior)
- Any other major and costly repair that will cost more than $3,000 - $4,000 on it alone
These items on the quick checklist are just some of the things to watch for that should cause you to walk away and keep looking. Any of these items could become a major repair resulting in lost profit, or worse, causing you to go in the red. A home that you do want is one that is structurally fine, completely up to code, and only needs some updating. Tackling things like updating an ugly kitchen and replacing old stained carpet are things that are considered to be easy fixes -- tearing out a roof or repairing plumbing are definitely not so easy and definitely not so cheap.
*Remember this when house hunting: Just like people, a home can have a lot done with its appearance to make it more attractive to others, but if the problem is deeper than that, it's going to be too hard and too costly to repair and will cause you nothing but pain in the end.
Tip 3: Know Your Numbers
While you're house hunting you should know some specific numbers so that you can come up with an estimate of what flipping it will cost you. Research will help in this area, but you can also do it on the fly as well by using your smartphone to check costs -- there's even some apps out there that will be helpful.
Numbers you'll need to know quickly include the approximate cost of installing carpet, what new appliances will cost you, how much new cabinets and countertops run, and how much a new paint job (interior and exterior) will be. You'll need to have these numbers tucked away in your head somewhere, and as you flip homes these amounts will soon become second nature to you and helpful for your budget. The two key areas to do inside a home are the bathrooms and kitchens, and outside will be the curb appeal and the paint. Most of your investment will go to these areas.
Your budget is a key part of your strategy when it comes to flipping a house and making money. Whatever budget you come up with, expert flippers recommend that you add as much as 20% to your estimate. This is because things come up so often that are unseen, so it's best to pad the estimate now and just be glad if you don't end up going that far.
Also, remember to calculate into your estimate the possibility of property taxes while you're the owner, as well as any possible mortgage payments you may need to make should it not sell as quickly as you hope.
Tip 4: DIY Is a Must for Profit
Of course DIY should be a part of every house flipper's money-saving agenda -- it's one of the absolute best ways that you'll actually make money on the flip. It's also the fun part to doing a flip. Before diving in to designing a whole new house though, call a realtor (the one you're using to sell it is best) and ask them to do a walkthrough with you. Ask them for advice on what sells best in that area, such as bigger kitchens or perhaps opening up a room to make it into a larger family room. Realtors know their clients, so rely on them for key design ideas.
As for what you do yourself, if you don't know how to do everything, say plumbing for example, it's okay. Things like plumbing and electrical are often best left to the experts, especially since they may be needed to keep the home up to code or for pulling permits. Other things though, such as anything involving labor, you can save a lot of money on by doing it all yourself.
Painting, installing carpet or other flooring, even drywall replacement, can all be done by you. Whatever you don't feel comfortable with, search around for the best contractors that are reasonable in cost and that may work with you if you're willing to do some of the labor involved. While flipping houses, you'll quickly discover just which contractors you can trust and which ones you can't, but until then, use sites like the Better Business Bureau and your state website for license and insurance checking when hiring anyone.
Tip 5: Stage Appeal
Finally, to get it to sell you'll want to set it up in a way that the potential buyers can see themselves living in it. Don't put in too much to the house, such as knick knacks. Keep it completely clutter-free. See if you can make some deal with a local furniture rental center that will help you stage the home in just the right way. Putting in a few simple furnishings will help buyers see just how home-y this "new" home can be.
There's not much to flipping a home as long as you choose the right location, choose the right house (something that needs just cosmetic work), and do most of the renovations yourself. Follow that overall strategy and you'll come out with a profitable investment and a fun experience.