If you are anything like millions of Americans you have probably caught countless shows on cable television that boast the serious profits that can be made by flipping houses. This is a very true statement, serious money can be made when one goes about flipping the correct way, however, serious money can be much more easily lost when a house flip goes wrong. If you are hoping to find your way to fortune through real estate investing you need to pull yourself up by the bootstraps and understand a few house flip basics.
The first thing you need to understand is that the ultimate goal in a venture such as this is to make as much money as possible in as little time as possible. This means several things to the wise investor not the least of which is that you must always have a complete inspection performed before you make any sort of financial commitment to the house. A good inspection can help you identify work that must be done, whether or not there is any structural damage, or whether there are any unexpected problems such as signs of termites or water damage behind the walls.
These are very important things to know and should have a significant impact on your offer on the property as they will have a direct effect on how much you will need to invest in making the property sellable and whether or not the property will even be profitable when you consider how much money will be needed to get it in minimal selling condition and how much you can reasonably expect to sell the house for after that.
Once you have the inspection done it is a good idea to take into account all the things that will need to be done to improve the property and the things that must be done in order to get the property in sellable condition along with permits that are needed, inspections that are needed, and jobs that require licensed contractors in order to meet local code requirements. Each of these will take a significant amount of investment in order to accomplish and that should also reflect in your offering price.
Far too few would be house flippers manage to take in the big picture when making plans and this is where they end up missing out on the bigger profits that can be made by successfully flipping houses for the lowest possible investment with the highest possible return on their investments. When making your plans you will want to go with changes that are cost effective.
Avoid making significant structural changes to the house unless you have a licensed contractor sign off on the wisdom and safety of those changes, as they can be very costly as well as dangerous to the stability of the property. At the same time you should salvage as much as possible within the existing structure. Flooring and paint are almost always required in a house flip but you do not always need new cabinets in the kitchen or bathroom fixtures. Chances are new doors and hardware in the kitchen would be a great fix for drab and tired cabinetry while greatly impacting the overall look of the kitchen without robbing you of some serious profits (doors cost significantly less than making new cabinets and can add the appearance of custom cabinetry).
The biggest idea to walk away from house flip boot camp with is the idea that the most visual impact you can have on the home for the least amount of money the better. In other words you don’t want to purchase a home that needs new heating or air conditioning as they are not visual changes and are quite expensive. Find a house to flip that needs minor cosmetic repairs and a little dose of style and imagination and you will be able to maximize your profit. That is what real estate investing is all about after all.
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Flipping houses is becoming increasingly popular. Unfortunately, the popularity of the idea is creating a bit of competition among those who would love to try it out for the first time.
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The increased competition often serves to drive up the costs involved in purchasing the profit, which only manages to lower the profit potential. However if you find a good deal and feel that the property is a good candidate for a flip you can ask yourself the following questions to help you determine whether or not the property really is a good candidate.
1) Have you had a qualified inspection and determined that there are only minor repairs that need to be made to the property and the landscaping? This is important because every repair that needs to be made will eat into your budget. You want to complete the project with as little extra money invested as possible in order to get the greatest return on your real estate investment possible.
2) Is the property suitable for the neighborhood? By this I mean is the property a three-bedroom house build for families in the middle of a retirement community or is it a one bedroom, cottage-style home in the midst of family houses? These aren’t exactly a good match and can cause problems when it comes time to sell.
3) Can the neighborhood bear the price you need to bring in from the flip? If you are creating an upscale home in a marginal neighborhood you are almost guaranteeing a loss on your investment. You want to find a house in need of repairs selling cheap in a neighborhood of much better houses so that it can bring in the profit you are hoping to get when all is said and done.
4) Can you make the changes you envision for the house on your budget and without significantly changing the structure of the house? This is a biggie and one that often gets overlooked. You do not want to start knocking out walls or creating additions when flipping a house. That is something you should leave for the new owners. You want to make as few waves as possible and only make changes that will improve the value of the home.
5) Can you improve the value of the home enough to make it worth your while in a short amount of time? This is another big deal when it comes to a house flip. It takes time and money to make the changes that most “flippers” have in mind for their investment, especially first time flippers. Do you have the time to stick with it and the money to cover the carrying costs while you are in the process of making the changes?
6) Is the property in a high demand neighborhood, city, etc. for selling properties? Another common mistake is buying in areas that are hard sells for buyers. It is often quite simple to find lower priced properties that are attractive at first glance however; if you can’t sell the property you purchase to flip it really defeats the purpose of putting all that time, effort, and money into making the improvements.
7) Can you do the work or will you need professionals and if so, will it still be cost effective? Be careful that you do not overestimate your abilities in this if possible. It is great to think you can put down a hardwood floor but the reality of doing it is quite another matter. Be sure you have a realistic understanding of the potential costs involved in the flip and whether or not the property will still be profitable in the worst-case scenario.
Answer these questions when checking out potential real estate investment and house flipping properties and you should be well on your way to a successful flip, at least as far as the selection of the property goes. You should also find a house to flip that you like as you will likely be spending a great deal of time there.
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