Flipping houses looks glamorous and easy on TV. Many people are enticed to get into the business, lured by the promise of easy money and high volume. But what is really involved in flipping houses profitably? We took a look.
What do you need to get started? You need an excellent credit score. You need cash, because you are usually investing in a high-risk property and need a bigger down payment, or you are buying outright, free and clear, at auction. Another option would be a 203(k) loan but that’s a whole other article. You need to know the real estate market. Most importantly, you need to know houses. Just like a good car mechanic looking to spend the least on a fixer upper, you need to know just how deep the money pit goes.
What you should look for in a house to flip:
Location. Find a home in a desirable neighborhood, or in a city where people want to live.
Sound Condition. You don’t want to start rebuilding it from scratch. Look for home that have a good sound structure.
Good Schools. Homes that are in good school districts tend to sell more quickly.
The Right Fixes. A house that has mold, needs a roof replacement, or needs rewiring, requires some serious time and cash to update and sell. Experts advise that you add 20% to the final repair estimate because it’s always going to cost more than you think.
Nearby. Don’t invest in a house far away from where you live because you will spend too much on gas and it will take longer to fix up the house.
Focus on the Kitchen. The kitchen is the most important room in the house. Focus on remodeling the kitchen, then look into bathroom redesign. Analyze how much you will have to spend on the kitchen to make the whole house a sale.
Value. Make sure the price of the home is below its value in the local market. Don’t buy from a picture or agent of a foreclosed home online. Always investigate a property in person before buying.
Here are more ways to avoid getting burned:
Get Educated
Don’t speculate about up and coming neighborhoods. Remember, you want this house sold fast. Become an expert on home financing options. Learn how to negotiate effectively. Know how to spot a good deal. Start building a network of contractors you trust, including plumbers, electricians, painters and landscapers.
Know which home improvements increase the home’s value, and focus on these improvements first.
Find a Mentor
If you know someone that has been successful flipping houses, ask him to be your mentor, and offer to cut him in on the deal. It’s an offer they can’t refuse; and you only need to do it for your first house.
Research Listings and Foreclosures
Many websites provide foreclosure listings. Check out a home’s background with BuildFax, which provides a comprehensive background check on a home, including repairs, remodeling, and additions.
Make an Offer
Once you find a home you like, you make an offer on the home. Before you make an offer, make sure you know the most you can pay for a house and still make a profit. If the homeowner or bank won’t sell to you for this price, walk away. Don’t go broke for a bad investment.
Start Working
You need permits before you start remodeling, preferably right after the sale. This helps you, and your contractors, get renovations done quickly, and within budget without incurring fines and delays.
List and Sell
Go with a Realtor. They are worth the money. If choose to sell your house yourself, you will end up waiting a long time for the house to sell; and showing a house eats up your time.
In Closing
Flipping houses offers great risks, but comes with great rewards. A house flipper must be prepared that the home won’t sell right away. House flippers have to decide whether to accept offers that are less than they wanted and still turn a profit. If you can handle the stress of it all, then house flipping might be right for you. Remember, luck is where opportunity meets preparation.
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