The notion of flipping a house has become quite popular these days, and everyone wants in on the action if this is a viable method of making a good return on investments in a short period of time. Television shows, the real estate agent who lives across the street, the contractor on the corner, and the guy who got laid off and is looking for a new line of work all are turning to the idea of buying a house, fixing it up cheaply, and turning around to sell it. Does it work? Yes. Always? No.
Flipping a house requires two things that few of us have enough of. Time and capital. Not only do you have to be able to qualify for the mortgage on each property you are interested in, but you have be able to lay out the cash for the renovations necessary to really turn the home into a winning investment. If you have that then you are halfway there. Most people who do this type of thing do not hire contractors for anything they can do themselves. Buying supplies and doing renovations yourself is cheaper, provided you know what you’re doing. If you have limited capabilities, just be honest with yourself about them and hire out the projects that require a greater skill than you possess. This is vital to process. If you do sloppy work you will not earn on your investment. Period.
Know what you are purchasing. You have to have a good handle on the real estate market and the true value of a home to negotiate it as far down as humanly possible prior to purchase. This is part of the process and the better you are at this part, the greater return you will receive. Once you have purchased the home, you have to start with a realistic plan and a realistic time frame. Your budget for this plan is coming out of your pocket. If you have no experience, then you need to start small and build from there. Starting with one small property is less costly in mistake taxes than starting with three large properties that run away from you. Keep in mind that you may find that once you start this, you might hate it and simply want out. This is easier to do with one small property than several larger properties.
When you lay out your plan, budget an extra ten to fifteen percent for oops factors. Oops factors are those unforeseen mistakes a newbie is likely to make along the way. Flipping a house is a business, and you’re going to have to learn a few hands on mistakes before getting it right. And you will continue to learn through mild oops factors even after you “get it right.”
Some investors who are a little low on capital negotiate with contractors. They offer a portion of the fee up front and then a larger percentage when the home sells again. Some contractors will laugh and walk away while others see it as a good investment. However, a word of caution, in many cases you will end up paying more this way than you would if you simply paid for the work that needed to be completed. You may also find yourself on the hook for a large amount of money if the home doesn’t sell within a reasonable period of time as many contractors will only agree to wait so long before collecting on the debt.
The best way to break into the business is to start with a structurally sound home and make aesthetic improvements such as new counter tops, tubs, floors, wallpaper or paint, and visually pleasing improvements and avoid structural enhancements until after you have gained experience flipping a few homes.
Once you have become adept at the flipping process and are able to prove an excellent track record, some loan officers can pull off special financing deals in return for bringing them qualified buyers. In many cases, you can actually suspend the payments until after the home sells. However, this is not legal in all counties and you need to check your local jurisdiction for home financing laws, as well as zoning laws, before beginning the process.
With a few basic home improvements and some experience, it is more than possible to pull off a $50,000 return on your investment with each home. Sometimes more when the climate for selling is warm. This doesn’t happen immediately, but with practice and a few mistakes to teach you the “don’ts” of the business, you can find yourself with a nice little business that provides you with the one thing we are most devoid in. Time and capital.
The prospect of flipping a house is much more appealing on television than it is in real life. It is a project to be entered into carefully, as the expense of rushing and jumping can be devastating if you aren’t careful about learning the process and understanding the real estate market.