People always tell me that they have always wanted to flip houses, of course they watch those TV shows and know that they could do it as well. TV is not reality, that doesn’t mean you can’t be successful but it is not as easy as they make it look and you need to be fully invested to make house flipping work.
If you want to flip properties, be aware that this is a full time business and you will never have the success you had imagined if you don’t invest fully into this endeavour.
Flipping homes can be very profitable but it is also risky and can cost you a lot of money if you are not careful. Flipping properties is a process and in order to have success you must follow that process. Flipping properties is a numbers game and you better be able to keep track of all those numbers if you are going to be profitable in this business.
Follow these House flipping tips below:
When buying a property to flip, you must do your research and when you find that property in the area you are looking for you need to make an offer without hesitation. Too many people lose out on deals because they are not quick enough to act. In order to maximize profits on a house flip you must buy the property at a discounted price. There are many things you can do to maximize profit on a flip once you own the property but it is vital to buy that property at the right price, remember in any real estate deal you make your money on the buy and not on the sell side.
If you’re ready to put in the work, there is certainly good money to be made. Just be smart, and leave your emotions at the door. Get ready for the ride, and be aware that it’s not as easy as it looks on TV, however it can be very profitable.
Educate yourself and learn from others, the flipping business is a people business so make sure you are ready for all the different folks you will need to build relationships with in order to be successful. Below are some tips of the trade and will most definitely put you on the path to success. Don’t cut corners as the risk will not be worth the reward.
Do the calculations – Figure out what you can spend on the house and the renovation and make sure to include how much risk you are prepared to take. Price out the cost of carrying a short-term loan, taxes, utilities and maintenance on the home for up to a year. Price out your material costs and labor.
Look at comparable sales in the market to see what the likely sale price will be and don’t expect appreciation. Once you have a financial plan in front of you, with an acceptable degree for risk, begin looking for homes that meet your model. Your costs should be broken down into acquisition costs, rehab costs, holding costs and selling costs.
Know your market – Is this an established area with rising prices? Is it a transitional neighborhood with good potential that still has room to grow? Is this an area with good schools that will attract families? Knowing your market will help you to choose the most desirable home and it will also help you determine what your profit margin will be. Every neighborhood has a price cap, make sure you don’t price yourself out of the market. Know what that is. Doing your homework on recent sales and average days on market can give you an idea of how long you can expect to hold the property before finding a buyer.
Don’t overprice – It’s tempting to look at your renovation, love what you’ve done, factor in all the sweat equity and overvalue the home. Remember, your buyer likely didn’t see it when you started. They have no idea how much stress you went through. They see the finished product only, and they have been shopping the market, touring the comparable homes.
Every neighborhood has a general price point, and you need to stay within it. You don’t want a property to stay on the market for too long, the purpose of this business is to make money on each deal and move on from one to the other as quickly as possible. The longer a property stays on the market, the more you stand to lose.
Know your buyer and renovate with that buyer in mind – If this is a neighborhood with good schools, then your buyer is a young family. Spend your money making the family space open. Make sure there are enough bathrooms for kids and invest in a Jack and Jill vanity in the hallway bath. Don’t focus too much on the master suite, but make sure mom and dad do have their own bathroom. If this is a retirement area, look for a home with just one main level or a ranch style. Make sure the home is easily accessible from the street.
Educate your buyer – You put in the work—make a list. Disclose every system that was replaced, from HVAC to electrical and any structural problems that you repaired. List new appliances and fixtures and present a binder with all instruction booklets and warranties. Let buyers know every detail of how your property is indeed move in ready.
If you are serious about maximizing profits on a house flip, do your due diligence and follow your formula. Remember, it is not as easy as it looks on TV, but that doesn’t mean you can’t have serious success in this business. Your goal should be a 30% or greater Return on Investment which is definitely attainable in today’s market. In addition to these tips above you will want to build a team of folks that you can trust. The people on your team will consist but should not be limited to a General Contractor, Real Estate Agent, Lawyer and Accountant, all of whom need to be trustworthy and have your best interest in mind.
If you really want to have success in the house flipping business, you need to be sure that you understand the math and the costs associated with your project from beginning to end and remember in include a contingency as there are always unexpected costs (I plan for a 5% to 10% contingency for each of my projects).
In addition, you must also know the property’s after repair value with clarity and without too much uncertainty as this could make all the difference in whether you make a profit. Make sure to stick with mainstream houses, you don’t want to go with out of the box homes that will not appeal to the mainstream, especially if your goal is to make money quickly. While it’s true that it only takes one buyer, you don’t want to have to wait too long to find that buyer as you will have holding costs and those will just go up the longer the property stays on the market.
Finally and maybe most importantly is do your due diligence and find a good RELIABLE contractor.
If you are able to follow the suggestions above you will have a great chance to have success in the house flipping business. If you happen to be a novice, I would strongly encourage you to partner up with someone that has a bit more experience and can show you the ropes.
You can have great success in flipping, just be sure that you do your homework, know your math and have confidence in yourself.
If you find a great deal, don’t worry too much about the financing piece as there are always investors looking to put their money in strong investment deals, but make sure you know all your calculations as investors will not put their dollars in these homes and with you if they don’t believe in you and/or the numbers behind the deal.
You need a detailed budget and to be able to estimate final profit with contingencies in place, remember to include all the associated costs.
You can do this – Happy investing to you and good luck on your next flip.