There are many investment opportunities in this world and fixing and flipping houses is one of the most popular. There are many television shows about the process, but they often make it seem much simpler than it really is. The truth is that while flipping a house for profit is possible, it is often very difficult. There are ample opportunities for you to make mistakes that sour your profits and turn a potentially lucrative investment into a money pit.
Luckily, you’re not the first person to ever fix and flip a house for profit. Plenty of other people have come before you and you have the opportunity to learn from their mistakes and take advantage of their best tips and pointers. When you can fix and flip a house successfully, you can see major profits and continue to replicate the process with more fix-and-flip projects. To help you become a flipping expert, let’s take a look at the most helpful tips for flipping a house for profit.
Pad Your Budget
Although television shows may make the fix-and-flip process seem easier than it really is, one obstacle investors on the show almost always encounter is unexpected repairs that they didn’t account for in the budget. This element in the shows is accurate. When you’re flipping a house for profit, it is essential to leave a bit of a buffer in your budget for problems that might come up.
Don’t make the mistake of thinking that your project won’t encounter any unexpected issues because these issues almost always crop up. When you start doing demo to the property and opening up walls there will more likely than not be extra things that you need to fix, like adding support beams for a wall you want to add or rerouting the electrical system. If you’re a first-time flipper, there are probably also going to be things that you forgot to account for in your budget. Many people are also taken by surprise when an inspection report shows more items that you need to fix and pay for. You will also need to factor in the cost of building permits. Depending on the type of work involved and the city you’re in, permits can range anywhere from a few hundred dollars up to several thousand dollars
When you’re making your budget, be sure to pad it by at least 20% for all of these unexpected expenses. It’s better to overestimate your budget, rather than creating a small budget you’ll soon exceed. If you’re investing in this property with your personal funds and have to go way over your budget, you may find yourself in financial trouble and need to contact bankruptcy lawyers. Avoid becoming one of the many bankruptcy cases the country sees every year by taking care to leave a little wiggle room in your budget.
Know the House’s Market Value
One of the most important parts of flipping a house for profit is knowing that the house is a good investment. Part of this is knowing the house’s market value. You want to be sure that the price of the home is below its value on the local market. When you’re looking at houses for sale, aim for the worst house in a great neighborhood rather than the best house in a lousy neighborhood. The worst house in a fantastic neighborhood can only go up in value because of the value of the other houses in the area.
You can easily look online to find out what the housing market is like in the area in which you’re trying to buy. When you find a house you’re interested in flipping online, take a look at the value of the other homes in the neighborhood to get an idea of what the value of the fix-and-flip will need to be. Be careful not to over-value the home by investing too much in the renovation. You may not make your money back if you put too much into the house to give it all of the latest and greatest renovations. Instead, aim for improving it just enough that it will make you a good profit and that it will be equal with what is selling in the neighborhood.
Buy a House in Sound Condition
A major mistake first-time flippers make is thinking that they can turn any type of home into a place where people can actually live. However, a home with serious structural issues is going to cost a lot of money, which your budget may not be prepared for. Surprises like a cracked foundation or black mold can ruin you financially, sending you searching for a bankruptcy law firm and wishing that you hadn’t ever invested in the property.
If you’re interested in flipping a house for profit, you need to buy a structurally sound home and you need to know how to evaluate the home for that soundness before you buy it. The best way to evaluate a home for structural soundness is with a professional inspector. They will be able to tell you if the house needs a new roof installation, any foundation work, or mold remediation. If you’re buying a home at a real estate auction, you may not have time to have it inspected before you sign that dotted line. In that case, you need to learn what to look for or have someone with you who knows about building, electric, and plumbing to determine if it is a good buy.
Be Realistic About the Renovations
Some people who want to get into flipping homes think they’ll be successful because they are handy with a few power tools. Flipping a house for profit, however, typically requires more than a drill and hammer. Home renovation projects tend to have unpleasant surprises that come with them and you’ll need to be prepared to call professionals for help if you’re planning on undertaking any major projects.
When you’re looking at homes and considering which one will be the most profitable, focus on the homes that need quick updates in order to resell. These updates can include refinishing kitchen cabinets, updating paint and carpeting, and adding new hardware. These types of improvements are more cosmetic than structural, meaning that they will likely be less expensive and complicated. Even fixing up the yard to improve the landscape is a relatively easy type of renovation. Just steer clear of major outdoor projects like taking down trees if you don’t want to strain your budget.
Other home renovations that can overstretch your budget include electrical rewiring, replacing a roof, and ridding a house of mold. These issues can take a significant amount of time and money to fix. As you consider the repairs you can afford, remember to also think about which projects will increase the selling price of the house. After all, that is the entire point of flipping a house for profit. You may be hesitant to buy a house that needs furnace repair because of the initial cost, but replacing it with a high-efficiency furnace will likely have a great ROI that’s worth investing in. Do your research to find out which home improvement projects have the highest return on investments and which ones can actually decrease the home’s resale value.
Work with a Good Contractor
An important part of flipping a house for profit is knowing when you can DIY and when it is better to hire a contractor to do the job. When you tackle projects yourself, you need to be sure you can do it well and within your budget. If you try to tackle a project that is beyond your skill set, you could end up doing damage to the house that costs you more in the long-run. Make sure the job is done correctly, expediently, and within the budget by finding a great contractor.
You can find most contractors online, but be sure to check their reviews and testimonials extensively. If you have friends or family who flip houses, you could ask them for recommendations for a good contractor.
Be sure that you know what type of contractor you’re looking for. A general contractor, or GC, is a professional who manages an entire renovation project and hires subcontractors to do the necessary work. If the house needs an updated sewer system, a new roof, and electrical rewiring, your GC would hire a subcontractor for sewer line repair, a subcontractor for roof installation, and a subcontractor for electrical work. Hiring a GC can be pricey, as they add 10% to 20% on top of what their subcontractors charge when calculating the final bill. It might be worth the money, however, if the house is a great investment opportunity that needs a lot of work that you can’t do yourself.
Hiring a GC is also worthwhile if you work a full-time job and the home needs significant improvements. They’ll be able to be at the house to oversee all of the work going on. If you had to split your time between your regular job and overseeing the renovations, they may take an incredibly long time to get done. When you hire a GC, they’ll also be the one in charge of obtaining the necessary building permits. This is a great perk, especially for anyone inexperienced with getting permits, as an experienced GC will likely be very familiar with the process.
Alternatively, you could oversee the flip yourself and just hire a contractor who specializes in an area in which you are not experienced. This can be a good option for those who buy a house that needs mostly cosmetic fixes and has one major issue, such as the plumbing. You could hire a contractor for plumbing repair service so that you know the job is done properly and DIY the rest of it. When hiring any type of contractor, be sure to check their reviews, get references, and ask plenty of questions when you interview them. Be sure that they are organized, have good time management skills, and can supply a professional, accurate bid for their work.
Decide How You Want to Relist and Sell
After all of your hard work on renovations, it’s time to put the finishing touches on the home and put it on the market. Remember to do the small projects that will help the home sell at this point, such as calling a local locksmith to put in new locks and make new keys for the future homeowners. These small details won’t cost you much and can help the home sell more quickly.
The majority of people flipping a house for profit list the house with a realtor. Experienced realtors know the ins and outs of the industry, have access to buyers, and can list the house in the Multiple Listing Service (MLS) database. They are also very familiar with the market and its fluctuations, getting you the best price as quickly as possible.
Alternatively, you could choose to sell the house yourself. While you will save money by not having to pay realtor fees, you may end up waiting a long time for a house to sell, depending on the market. You will also have to be prepared to make the time commitment to listing and showing the house. If you don’t have the time to commit to this because of your full-time job and family, it is best to work with a realtor.
Flipping a house for profit isn’t a simple task. There are a lot of moving parts in the process and you can face serious obstacles at almost every step. It can be a risky business, especially if you haven’t taken on a project like this before. By following these tips and making smart decisions along the way, however, you have a much higher chance of making a profit off of your investment.
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