House flipping is when real estate investors buy homes, usually at auction, and then resell them at a profit months down the road. Can you make money doing this? Yes. Can you make a lot of money doing this? Yes. But you can also lose everything you own if you make a bad decision.
So what should you look for in a potential house flip?
Location: The buyer should know about the area in which they are buying property. A buyer should know, for example, what characteristics (acreage, number of rooms, type of home, etc) are the most desirable in the area in which they are looking to buy. Equally important is knowing what houses in the general vicinity have sold for and if there is likely to be any future development in the community (such as a new school, condominium or shopping centre) as this could affect supply and demand.
Condition. You don’t want to tear the house down, and start rebuilding it from scratch. Look for structurally sound homes. You may not have the opportunity to have a home inspected, especially if you buy the home at a real estate auction. You need to learn what to look for, or bring someone knowledgeable about building, electric, and plumbing with you to look at the home, to determine if the home is structurally sound
The Right Fixes. A home with old carpet and wallpaper may be easy, and cheap, to update. Other home repairs to tackle might include replacing old kitchen lino, and replacing hollow doors with six-panel doors throughout the home. A house that has mold, needs a roof replacement, or needs rewiring, requires some serious time and cash to update and sell.
Make sure you know which updates and repairs you can afford to fix, which repairs you can’t afford, and which home improvements will increase the selling price of the house. When you estimate the cost of any job, experts advise that you add 20% to the final estimate. Why? It’s always going to cost more than you think it will, say the experts. Always.
Close to You. You will work on this house daily in the weeks and months to come. Do you really want to work all day, and then drive an hour to get home? Don’t invest in a house too far away from where you live; you will spend more money on gas, and it will take longer to fix up the house.
Analyze the Kitchen. The kitchen is the most important room in the house. Pay close attention to this area when you buy a house. Most experts recommend you focus on remodelling the kitchen, and then look into bathroom redesign ideas. Analyze how much you will have to spend on the kitchen in order to make it appealing for future buyers.
Value. Make sure the price of the home is below its value in the local market. Otherwise, you will not make money. Try to buy the worst house in a great neighbourhood, versus the best house in a lousy neighbourhood. The worst house in a great neighbourhood has nowhere to go but up in value, due to the value of the other homes in the area.
A Group of Experts. While a house flipper can certainly go it alone, it will certainly help to find individuals that are familiar with the legal, accounting and construction ramifications of flipping houses.
Flippers typically work against the clock, so they must renovate a home on budget and then turn it around and sell it before the financing costs eat up their profits. Having a group of experts to rely on, including a Real Estate Agent, a lawyer, a contractor or renovator, an accountant, a home inspector and an insurance agent can ensure that the work is completed in a timely and efficient manner.
A Handyman or Knack for Home Improvement. The house flippers that make the most money buying and selling homes tend to be handy people. That is, they have the ability to step in and lend a helping hand when time or money constraints kick in. Most flippers can do things like change a sink, install a countertop, do basic electrical or plumbing work, and/or shingle a roof.
Why is being handy so important?
The obvious answer is that if you can do the work yourself, you won't have to pay someone to come in and do it. However, there are other advantages to being handy as well. For example, there are times when it will be impossible to get an electrician to install an attic fan on short notice. There are also times when a job must be completed without warning at the last second in order to obtain a certificate of occupancy. In these instances, having the ability to navigate your way around a tool box is very valuable.
A Good Estimator. By definition, house flippers attempt to buy a property and then resell it at a profit in relatively short order. In order to do this, however, the flipper must typically make some structural and/or cosmetic changes to make the property more appealing to the next buyer.
If the flipper underestimates the costs associated with the refurbishment he or she may be exposed to large monetary losses. Therefore, a flipper should be familiar with construction materials (their use and their cost), as well as local construction codes, the cost of local labor and the time it should take to do a given job.
This is no small feat. In fact, it takes even the most seasoned construction professional many years before he or she is aware of all the nuances that exist. In any case, before becoming involved in "flipping", be certain of your abilities to estimate a job in terms of both cost and time.
Patience. One of the biggest obstacles to making money in the real estate market is that buyers tend to overpay for a given property. Why do buyers overpay?
Typically, buyers become emotionally attached to a property or develop some other bond with it, which in turn forces them to enter into a contract on less than favorable terms.
However, savvy flippers have the ability to avoid emotional purchases, and the desire to find diamonds in the rough and properties on the cheap. They also understand that if they aren't buying a property at a favourable price and with favourable terms, it makes sense to simply move on
The bad news is that patience is a difficult virtue to teach, and hone. In general, either you have it or you'll lose a lot of money trying to learn it.
Although you can search the web and see millions of foreclosed homes for sale, never buy a home without seeing it in person. This is the biggest mistake new flippers make. Keep in mind, the online photo gallery only tells part of the story: Old photos, an awful neighbourhood, and black mold are just a few of the horror stories of foreclosed homes online. Always investigate a property yourself before deciding to buy.