Flipping Houses - Not As Easy As You May Think!
If you watch home-and-garden cable channels, it looks like everyone is flipping houses. i.e. buying a piece of real estate, making minor repairs, and quickly selling it at a substantially higher price. Basic investing 101: Buy low, sell high.
Certainly sounds appealing--and you may be tempted to join the ranks of those who have been successful in this field. Be forewarned, however, that like most money-making endeavors, real estate flipping requires time, money, patience and skill.
For tips on how to begin, steps to follow, and advice on how to avoid pitfalls, read on…
Do your research and be knowledgeable well in advance:
- Talk to (and learn from) successful flippers, read up on the subject, follow real estate deals in the newspaper, use the Internet as a teaching resource, attend open houses and auctions.
- Identify possible house locations, size, and style. Educate yourself on how to recognize promising properties and how to spot a lemon.
- Familiarize yourself with current prices, taxes, utility rates, HOA fees, municipal and restrictions in each area you are considering. Study your market. Get to know it as well as you possibly can. Understand the trends, the kinds of houses, the neighborhoods, the streets.
- Visit the potential homes and neighborhoods in person. Talk to residents, Realtors, and repair companies who are familiar with the area.
Set up a budget, a time line, and financing:
- Figure out how much money you have (or can put your hands on using investors) without borrowing.
- Calculate the cost of repairs, taxes, utilities, materials, contractor/labor expenses, and the like. Professional contractors advise flippers to add an extra 10% to their repair estimate. Also, to be on the safe side, make sure that you’ll be able to hold on to the home as a rental property for a while, if need be.
- Experts suggest factoring in the flip time into your budget and your potential profit before you purchase the home. According to investors, a successful flip is one that makes you around a 15% profit.
Be prepared:
- When you find the right house, you must act quickly to buy it.
- Have appraisers, agents, contractors, skilled laborers lined up so they can start work immediately upon your purchase. Remember, in flipping, time is money!
- Be ready to make quick decisions, devote a great deal of time (and possibly sweat equity) to this project, and face unexpected expenses.
Two major caveats: Be patient and don’t get greedy!
Information courtesy of New Castle County DE Realtor Tucker Robbins.
