For those who follow those house-flipping shows on the various do-it-yourself and home and garden channels, going into the flipping business may seem like a no-brainer. The stars of these shows make flipping seem ridiculously effortless. Within 30 minutes, they’ve picked up the most disgusting, dilapidated house on the block for a steal and turned it into a glamorous showplace, pocketing a profit equivalent to the average year’s salary. It’s easy to believe that you, too, can make millions flipping houses. In real life, however, a successful flip project requires significant preparation and a lot of hard work. Here are five tips to keep your first flip from becoming a flop.
Don’t try to do too much at once
Even if you’re pretty good at home repairs, trying to managing multiple flipping projects at one time or opting to renovate a 6,000-square-feet house as your first flip will inevitably end in disaster. Try not to spread yourself too thin, especially on your first project. Even if you recruit reliable, trusted crews to help you in your endeavors, you’ll want to be sure you’re readily available to manage and inspect their work, make recommendations, and answer questions — and that’s nearly impossible to do when you’re dealing with multiple or massive properties. It’s best to ease into your new endeavor. Start with one small property and see how it goes. You’ll learn valuable lessons about flipping once you’re knee-deep and hands-on — lessons you can apply to your next flip.
Don’t spend too much money
This tip may seem obvious, but even the television flippers sometimes go over budget because of unexpected repairs or changes in the real estate climate. But ensuring you’re going to make money in the end instead of owing it begins before you even purchase your first property. Experts recommend using the “70 Percent Rule” to determine what you should pay for a flippable house. Estimate what the market value of the house will be when your renovation is complete; multiple that amount by .70, then subtract your estimated repair costs. The resulting number should allow you a 30 percent margin for unforeseen overages, extra mortgage payments, and, most importantly, profit.
Have the house professionally inspected
A professional inspection may cost a few hundred dollars, but it could save you thousands of dollars in the long run. Inspections can reveal everything from cabinet drawers that don’t close properly to outdated plumbing to a failing foundation. Licensed inspectors provide a detailed list of the potential issues they find during their review, and usually give you an indication of the severity of the problem. For example, does the foundation require a complete $30,000 rebuild or just the installation of foundation jacks on a few weak spots? The results of this report could help you negotiate a better purchase price, determine whether you need to abandon the purchase altogether, or at least learn more about what to look for on your next flipping project house purchase.
Honestly consider your renovation skills
So you’ve replaced the tile on your home’s kitchen backsplash and installed a new faucet in your bath; that doesn’t necessarily mean that you can also handle reworking electrical wiring or framing out a new closet. Even the pros don’t often tackle a flipping project on their own. They hire dependable experts — especially for specialty work such as plumbing and electrical. If you’re the least bit skeptical about your abilities in an area that usually requires professionals, stay on the safe side and hire one. You’ll save valuable time and money in the long run. Just be sure to figure in the costs of these crews when calculating your estimated repair costs.
Conduct thorough research
Before you sign on the dotted line of a purchase agreement or mortgage, be sure you’ve done your due diligence about the property and neighborhood in which you’re about to spend the next few months of your life. Ask your real estate professional the purchase prices of comparable homes that have recently sold in the neighborhood. Realtors will also know “insider” information, like an area’s reputation, trends and predictions of performance in the local real estate market, and any preferences buyers may have indicated. You’ll also want to check with your city’s building department to secure any necessary permits before you start your project–not after you’ve been fined for not having them.
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