You may watch television and have seen the numerous fixer upper shows that highlight the ease of being able to make quick money by purchasing a house for a low cost and then doing a complete renovation and selling it for a higher price. The television shows are exciting to watch-the drama and suspense of it all, and the final beautiful project is unveiled, and we are left in awe. We say to ourselves. I can do that.
However, the television show that airs for 30-60 minutes, cannot show you all the intricate details that are involved. There are some benefits. You can make a lot of money, it's a short term project that you can do it while still working your full time job, there are opportunities in any market to buy low and sell high, and as you will read later -it doesn't require a lot of your own money.
Here are some tips if you want to throw your hat in the ring for the first time.
1. Know your investment objective. Which means are you buying for a tax shelter, do you want to avoid capital gains tax, are you buying to fix and hold, or are you buying as the title states to fix then flip (sell).
2. Due your due diligence when purchasing distressed property. Make sure there will be clear title passed on to you and if not gauge the risk involved of you taking on the property without clear title and working on eliminating judgments, liens, and code violations. Work with the most experienced title company in your area, they will help you navigate the process.
3. If you have the cash to pay it out right. I will advise against it. It's best in the beginning to build a relationship with a community lender. This is helpful when taking on larger projects. In my community of Philadelphia, I recommend Univest Bank. They are a community and relationship lender that will guide you step by step through the lending process.
4. Build a team of reliable and responsible professionals that will help you complete the projects. Hire an architect, general contractor, engineer, accountant, lawyer, stager, Realtor.
5.Please, please, make sure you have current resumes for all involved in your project and that you have done extension research vetting the capabilities of your team. For example, you do not want to hire a general contractor that is in bankruptcy and a lawyer that is in the middle of a political scandal, a Realtor that has complaints against his license. Do your homework first.
6. Next you will need to be familiar with the building and code department. Build a relationship with someone in the department for easy access to information. This helps with getting paperwork process easily. It doesn't cost you much to bring the office 10 boxes of pizza on a busy Monday afternoon.
7.Roadblocks will come up with your project. You may experience electrical, plumbing, structural problems that may cost 10x what you expected. You may have to change the layout because of such problems. Therefore, the relationship with the lender and the builder is very important.
8. Finally you are done. The stager and the Realtor you hired will go to work getting the house sold.
9.The house is sold, now it's time to sit down with the accountant you hired and to find out what is best thing to do with the proceeds. Should you do a 1031 exchange allow by the IRS to delay paying capital gains taxes, should you roll over the profit into another investment. All these answers depend on your investment objective which you should clearly know because it is the first step in the process.
I wish you the best of luck with your project, you can add me on your list as the Realtor that will help you find the distressed property and then help you to sell it when you FLIP.
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