So, you want to start flipping houses. You’ve seen every episode of every home renovation show on HGTV and now you think you’re ready to get into the business. Well, people have jumped into businesses with far less and it’s not to say you couldn’t do it, but there are a few things that you should realize before you do.
House flipping isn’t as easy as people make it seem on TV, and investing in real estate can be a risky game. If you’re still adamant about flipping your first house, then here are a few tips to help you do it.
Find the money
Everything comes down to the money, right? That is especially true in real estate when the investments are much greater and the risks are potentially higher. However, you don’t need to have the capital on hand to make a purchase and you can take out a real estate investment loan to handle the brute of the financial costs. There is a downside to doing so, which is if you don’t make the return you were expecting. For instance, if you took out a loan for $155,000 (which is the median property price that investors purchased in 2017) and put in $30,000 of your own money but you only got a return of $120,000, then you’d still need to pay the bank back the total of their loan plus any interest, meaning you’d have suffered a substantial loss. There are really two ways to finance a house flip: using your own capital for the majority of the expenses or taking out a loan for the majority of the expenses. Each has its own drawbacks and benefits, so you’ll need to evaluate your financials before choosing which route to take.
Buy at the best price
You shouldn’t just impulsively choose which property to invest in because you can end up making a huge mistake. That means you’ll have to pay attention to the housing market and identify trends in your target area so that you can buy a house well under market value. Even if the market value of a home is at an all-time low and you can stand to make a pretty penny by just sitting on it, flipping is all about what you can do to the house. So when looking for your first investment property, choose one that is below market value and that you can make significant upgrades to in order to drive up the value and price. In other words, you wouldn’t want to buy a nice condo in Manhattan, which went for an average sale price of $1.9 million in the third quarter of 2017, for a house flip. Choose properties that can be improved and sold for a solid return.
Get a good team
If you expected to do everything yourself, then you’re in for a pretty disappointing surprise. You’d need to be a licensed real estate agent, real estate attorney, contractor, and accountant. Since you’re probably not all of those things, you need to hire a team to help you out. There are some investors who double as agents or contractors, but you don’t need to be in order to have a successful flip. You should consider hiring the following professionals when assembling your house flipping team:
- Attorney: handles all legal aspects, permits, contracts, etc.
- Real estate agent: helps you purchase and sell the house.
- Contractor: does all of the construction work.
- Landscaper: designs the layout of the property.
- Accountant: your financial guru.
- Architect: designs the infrastructure of the house itself.
You might find it helpful to have other people on your team, such as an investment partner or someone to help you with the planning. If you’re listing the house right after your build, consider also hiring an interior decorator to help stage the home.
Know the game
As it was mentioned before, investing in real estate is a game with incredible risk. That’s why it’s important to have as much knowledge as possible going into your flip. Your timeframe is a big aspect that most people forget to account for and taking too long on a house can equate to a loss on your return. Not only could you miss your sell window but you’re accruing expenses in labor, materials, permit renewals, and equipment. A job site trailer, for instance, will last for five years at most and while you might not take five years for a build, it’s important to understand that everything has an expiration date, including your flip. Creating a timeline and sticking to it should be an integral part of your business plan (and you should definitely create a business plan).
It might be worth mentioning that not all house flips are for profit or are at least not intended to make a profit. With one-fifth of the world’s migrants living in the United States as of 2017 and countless underprivileged citizens, there is always a need for affordable housing. Consider flipping for the good of your community and the benefit of your neighbors. You can still make your money back and you’re doing a good thing for other people.
No matter your intentions or your skill level, applying these tips to your future of house flipping can help you be successful.
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