I’ve Flipped! (a brief overview)
Let’s face it we’ve all watch the shows and think “Wow, how glamorous, I want to do that! ” The truth is taking on new challenges can be stressful and scary. But don’t let those emotions cause you to think flipping houses is too complicated, because it’s not! And although at first the learning curve can be a little steep, it smoothes out the longer you do it. Flipping is simply a process, and any process can be learned.
Remember how you felt when you first learned to drive an automobile? Very complicated right? Yet driving is probably second nature to you now. Well, the same with flipping. Eventually, with a little practice, buying and selling houses will become as second-nature as driving a car. Keep at it; keep practicing. It will get easier.
I might be oversimplifying things, but let’s just break this down into a simple 3-step process: Buy, Renovate and Sell. Granted this is just an overview, but let’s walk through it.
These days a large number of people looking for good houses to flip (re-sell quickly at an increase in price). But not every house, even if it’s a foreclosure, is going to be profitable as a flip.
Buying the right kind of house can mean the difference between making a lucrative profit versus barely breaking even, or losing money. Why toil for weeks on a property unless you can realize a substantial profit? The objective should be to maximize your profit potential from the start, while reducing overall risk. Always taking into consideration, location of property, year built (something built after 1978 is preferable), good floor plan but most importantly DO THE MATH!
A lot of flipping is attributed to the “buy”. Since we are making this simple let’s break this down. First you need to figure out the projected sales price or After Repair Value “ARV.” If you’re not sure how to calculate this look at a real estate agent to help you. Once you have the ARV you will want to subtract, costs of the sale (realtor commissions), holding costs (property tax, insurance, utilities), mortgages (and lender points) and finally repair costs. Oh, and don’t forget your profit!! Make sure you know how much you want to make before you commit. Take all those costs out and what you are left with is what you should offer on the home.
Be careful that you don’t over pay. Especially if you plan to resell quickly, paying too much up front can doom your plans for quick profit. Research the market for reselling and have an exit plan for selling the house in place before making an offer.
The most important thing to know before making a decision on such a purchase is what needs to be fixed. Any time you are spending money on improving a home with the notion of selling it later, strive to spend your money on things that buyers can easily see. Things like new paint and removing trash from the property cost little but have instant impact on curb appeal. Houses that have only cosmetic problems like peeling paint, a trashy yard, bad carpet or wallpaper are the best bet. Fixing and cleaning cosmetic issues is fairly easy and inexpensive. It virtually always gives gives a good return on investment. Kitchen and bathroom remodeling usually pays the highest return. Don’t be afraid of buying a fixer-upper in need of this kind of repair.
Always have an inspection for hidden damage performed by a home inspector or construction professional before buying a fixer-upper. Then be sure to negotiate to try and get the seller to pay for all or part of the cost of needed repairs uncovered by the inspection.
Create a budget and timeline and stick to them! That one sentence might be short but it’s mighty. The hardest part of renovating is sticking to these things, but this is also the part that will make the project more profitable in the end.
Real Estate does have season so picking the right time of year to sell your home can be key. Look at your local zillow reports to determine what time of year transactions goes up and down (usually the holiday season November-January).
Secondly, but no less important, choose and agent wisely. Once again you need to look at your local market the see who the top sellers are. You can run these reports in Zillow or Redfin to determine who is actively closing deals in your market. My advise is that you interview at least 3 of the top 5 agents and learn about their thoughts on the house and what they believe it will sell for.
A word of caution, at this point you’ve spend some time with this house, seen it from ugly duckling to beautiful swan…. Don’t Fall In Love with Your Baby! This isn’t “your baby” but a real estate deal. Frequently we stand back and say “This looks better than I expected. I can get more.” Take a moment and look at the ARV you estimated in the beginning be realistic about the price. The last thing you need is an empty house sitting on the market.
In conclusion, If you’re still scared, here’s some good news! A built-in safety net exists to help you, right where you live. Real estate professionals are in business to help people just like you. Get out connect with others! For example, real estate agents need you. They need homes to sell or they don’t earn commissions. Lenders need you. Contractors need you. Title companies need you. You’ll need to form a “Dream Team” of these professionals to help you. Your dream team will welcome your calls and your questions. You’ll build long-term business relationships with your team members, and they with you. And as you become more experienced, you will pass on the wisdom you’ve gained to others who can benefit from the path you’ve chosen.
It only seems complicated now because you’re just starting out. Successful flipping takes time and experience. More importantly, it takes motivation, drive, determination, and hard work. You can overcome inexperience by doing your homework, asking for guidance, and working hard. Stick with it and soon you’ll be experienced and won‘t think of it as complicated at all.