Flipping a House 101
Flipping a house is a great way to make money off an investment, but it isn’t as easy as it looks on TV. Even if you have the cash and initiative, there are a lot of things to consider when buying and selling real estate. From knowing your market to building your own flip team, here are some basic things to keep in mind when flipping a house.
Doing the math is the first step in flipping a house. After all, you don’t want to invest in a property without knowing what you’re willing to spend. This includes calculating the price of the home and renovations. Price what the materials and labor will cost, plus utilities and monthly mortgage for up to one year. With a reasonable plan laid out—including an acceptable risk margin—you can start looking for homes within your targeted budget.
Study the Market
All neighborhoods are not created equal. Not only does the location of the home help determine the selling price, but there are other aspects about the community that will attract different buyers. Good schools, for example, will attract families while secure neighborhoods might be appealing for retirees. Studying the market before you buy will give you a better understanding of what you can get out of a property and how long it might take to sell.
Once you’ve targeted an area, it’s time to start looking for a viable property to flip. Although finding the right property can be challenging, there are several options at your disposal. Real estate agents are a great resource in discovering undervalued property, especially ones that need a lot of repairs. You can also put out signs and have home owners call you if they want to sell their property. Another option is to seek out abandoned property owners through town records and keep an eye on foreclosure notices.
Purchasing a Home
Once you find a potential flip, it’s time to purchase. You will need some cash in order to flip a home. Fortunately, you get cash from a bank or private investors if you don’t have any of your own. If you are unable to find sufficient funds, then consider entering a joint venture with somebody who has money to spend. While you won’t make all the profit from your first flip, you should make enough to go out on your own the next time.
Understand Potential Buyers
Before you start the renovation, it’s important to think about who might purchase the home. Is the home more appealing to a young family or older couple? This will determine where you focus your renovation efforts. If you think the home will appeal to a family, then consider opening up the kitchen and living room. For an older couple, you’ll want to make the house accessible and free of difficult terrain.
Start a Flip Team
Once you know how you’re going to renovate the home, it’s time to start a flip team. This team will be comprised of specialists who offer advice and help in the renovation process. They will also supplement areas that aren’t in your expertise. Team members should include general contractors, a designer, an insurance agent, and a CPA. In an ideal situation, all the members of your team will help ensure the flip goes as smoothly and quickly as possible, without any major hiccups along the way.
Once you have successfully renovated a home, it’s tempting to overprice. After all, you’ve seen the transformation process from beginning to end and know all the hard work that went into the final product. But keep in mind, your buyer didn’t see the home on day one of the flip. They are also going to compare the house to others in their price range, so make sure you keep the asking price competitive.
Finding the right home to flip is, of course, the most important step in the process. As a rule of thumb, your first investment home should be something that is easy to sell and falls within the 2-3 bedroom, 1,200-2000 square feet range. Try and avoid homes that need major structural work and focus on properties that need cosmetic and basic updates, especially on your first flip.