In this article, we will go over the basics of flipping a house and making a healthy profit.
So let’s take a look at what is involved.
Simply put, house flipping is when you buy a house and then sell it for a profit within a relatively short period. Usually, the turnaround is less than a year or even much shorter.
There are a few different ways to make money flipping a house but this article discusses the most common way. Fix and flip.
Fix and Flip
Fix and flip is a well-used industry term for this way of flipping houses for a profit. It involves purchasing a house at a low price and then making renovations that add value to the property.
Once the repairs and improvements are complete you can then sell the house for a profit.
Is Flipping guaranteed to make you money?
There are never any guarantees in any kind of investment and in the current economic climate it is becoming more difficult to make large profits so it is necessary to do your research and proceed accordingly.
If you do your due diligence, invest wisely and work hard you can still flip the house and sell it for thousands more than you paid. If you fail to do those things then the project could end up losing you thousands.
Raising the money
This is the most obvious choice for financing your house flip. Getting a loan for a house flip from the bank is the same as getting a regular mortgage loan. You will have options as to the length of the loan term and you will be expected to make a down payment.
To qualify for this type of traditional loan, you need good credit. The bank may need to be convinced that your project will be a profitable one; you may have to work hard to convince them if you do not have previous experience of flipping houses profitably.
If you are in a position to finance your house flip with cash then you are in an advantageous position. This means that you will not have to make interest payments on the loan which can be costly especially if the flip takes longer than you anticipate.
Cash only flippers also have the luxury of waiting out a slow market and will not feel pressured to sell too early.
Understanding the Market
It is no great revelation to say that successfully Investing in multifamily real estate depends upon that well-used expression, location, location, location.
Why is the value of a property so heavily linked to the location in which it resides? Because, you can always change the features of a home, but you can only make limited addition to its value if the location is not desirable.
Investing in the right location will be the secret of your success.
It will be important to get a good idea of what other properties are selling for in the area. When it comes time to sell your property you should sell it at the lower end of what comparable homes are selling for in that area if you want to move it quickly.
Once you do decide to invest, the most important thing of all is to buy the property at the right price. This can be done by taking the time to become knowledgeable about the area in which you locate your investment property. Speak to as many locals and rental agents as you possibly can. Local knowledge is a game-changer, especially when considering the little details.
For example, those who are very familiar with the area can even tell you which side of the street is considered more desirable than the other.
Ask yourself the following questions and do your research to find the answers:
What are other properties selling for in the area? What is the profile of the typical renter in the area? Does the property suit that particular demographic? How is the local job market? Are there any improvements planned for the area? How are the schools? What is the crime rate? Are there lots of amenities in the locality?
The Scope & Budget of the Renovations
The renovation budget is where you have to take the time to dig in and do your homework.
You are putting in time and research but at this point you are not actually making money so it’s hard to have the discipline to put the time in, but if you do so at the outset, it will pay off later.
If you don’t take the time at the outset then you WILL lose money.
You need to know your renovation costs before purchasing the property only then can you be sure that your project will make a profit.
Watch out for any potential expensive plumbing or electrical issues. If you lack the know-how then be sure to consult a trustworthy contractor that can tell you the costs involved.
At this stage it would be wise to pay the money for a home inspection, the U.S. Department of Housing and Urban Development estimates that it may cost a home buyer $300–500 for a home inspection.
Try to find a property that needs cosmetic work but there are no major issues with the house.
You can then focus on cosmetic improvements such as floors, paint, landscaping, kitchen, bathroom, etc.
Improve and renovate to the point where you can get the full value out of the property for the area.
There is no need to go overboard with the fixtures and fittings.
The house flipping shows on TV make it seem easy and that is only true for those who know what they are doing.
Be sure to continue your research and add more knowledge to this article which has introduced you to some of the basics of house flipping.