Have you considered flipping houses? Many people are finding this real estate venture to be rather enticing, and many have actually put it into action. Despite the various popular shows on the topic which make it look as simple as 1-2-3, house flipping is actually a very rigorous and busy job. You will wear many hats during the project and may even surprise yourself by how much work you can actually do in a single day. So don’t be fooled by T.V. shows which leave out all the boring hard labor, errand running, trips to the hardware store and back again, 4 to 5 times in a single day, or the time lapses that sometimes occur when your project is on hold due to any number of issues that could arise. Sometimes what you hoped would be a quick flip, turns out to be a slow roll, or worse, a “flop”.
Keep in mind the whole idea behind flipping houses is the quickness of the turn. This is a somewhat forgotten principle on the TV shows, which put more emphasis on the issues or the finishes. If you buy the home and end up having to make a mortgage payment on it before you are actually able to sell it…well that begins to eat into your profits and your budget. The longer you hold on to it the less profit you will make on it. Precision and speed play a large roll in the success of your house flip.
1. Flipping houses is all about the math. If you don’t do it, expect a disaster.
Before you purchase a home and throughout the rehab process you must know the magic number. Referred to as ARV “After Repair Value” is the highest selling price you can expect, after you’ve fixed it up. This will command your entire budgeting process and let you know whether buying the home is really worth it. Is there enough of a gap between the cost of the home before fixing it up, and what you could potentially sell it for after fixing it up? Remember there needs to be room for the cost of the repairs with enough left over as profit to make it worth the effort you will put into it. If profit is tight you may want to reconsider since rehab costs often end up costing more than the original estimate. If this is the case you are likely to end up in the negative very quickly. If you don’t have at least a 25k profit as a buffer, things could go south very quickly.
2. In order to nail down the ARV you will need some help from a realtor you trust. Inform them of your flipping plan.
Realtors generally know more about neighborhoods and if they don’t, they know people that do. They will be able to provide reliable information that you simply don’t have access to. Before you purchase the home, research the other home prices in the area. Comps can be helpful at letting you know the ARV or max you can expect to get for your rehabbed house when it’s sold.
3. Do as much leg work as possible before purchasing the home.
This means have your team in place, ready to get to work as soon as you get the keys. Have your finishes picked out ( or at least an idea) and the associated costs. Take your contractor thru the house before you purchase it, especially if this is your first flip. This will allow them to give you a rough estimate of rehab costs and is important in making a sound purchase. After you have a few flips under your belt you will become pretty good at estimating the costs associated with a rehab. Even so, taking a contractor thru the home, before you purchase it, and whenever possible, is a good idea. They may spot potential issues that could figure into more costly repairs, making the home a less than savory deal. Or it may allow you more preparedness to adjust your numbers slightly. Sometimes you are able to cut back on finishes here and there to maximize your profits and stay within a reasonable profit if you know about these potential issues ahead of time.