Flipping houses can be a great way to earn a living. However, it is also a lot of work and it requires some fundamental knowledge if you want to make wise judgments. Whether you’re flush with cash to invest or you’re starting out buying a home with bad credit in an effort to increase your earning prospects, it’s important that you take pains to educate yourself so you can be successful in your venture.
Here are just a few vital tips that will get you on track for success when you decide to flip houses.
1. Understand Which Homes Sell Quickly
The average house hunter is looking for their dream home. This is not the case with fix and flip buyers. You need to find a house that you can get at a low price, fix up with limited time and expense, and sell for a profit in short order.
How do you find these unicorns of the real estate marketplace? There are a few things to look for. First, it’s best to work within a moderate price range. You can flip million-dollar homes and make huge profits, to be sure, but you’re taking a risk.
Only a small market can afford such homes, and they expect amenities and attention to detail that require a heftier budget and time frame. All of this could dramatically increase your turnaround time and eat into potential profits.
Rather, you should look for tract homes in high-population areas. These are going to be the easiest to sell because of high buyer traffic. Also consider that generic properties offer the most potential for personalization to the largest number of buyers. Good school districts, low crime rates, and access to amenities (transit, shopping, entertainment, etc.) are also desirable.
2. Understand Renovation Costs
Fix and flip homes are so named because they’re going to need at least a modicum of repairs and/or upgrades in order to be profitable, or in some cases, salable. Before you accept funds from banks or private money lenders, you must have at least a basic understanding of the costs that await you including labor, materials, mortgage/interest payments, and of course, the unexpected.
If you work with a reputable contractor, you’ll have some idea going in what repairs and upgrades are needed, as well as estimates for labor and materials. There are certain variables you can’t necessarily predict, but you can try to plan for anyway.
For example, you don’t know how long it will take you to renovate and sell a home, but you can plan out renovations and try to sell within a certain amount of time. You just need to anticipate potential setbacks.
Progress could be delayed due to weather conditions or materials held up in transit. You might also encounter unknown issues once you start work, like code violations, mold, pest infestations, or other obstacles that must be addressed.
These delays can cost you money not only for increased materials and labor, but also additional monthly payments. The point is that you need to prepare for overages by padding your budget in anticipation of unknown expenses.
3. Buy Low
You never know what kind of profit you’re going to see from a house flip. You have some control over how you handle the fix-up and marketing of the home, but you just don’t know for sure how buyers will respond.
What you have a lot more control over is how much you spend, and it begins with getting the lowest possible price when you buy property. You must be willing to negotiate. Like any business, flipping homes is a numbers game, and overspending unnecessarily eats into your profits.
Real estate and construction are two industries where who you know is often as important as what you know. Maintaining and growing your network of contractors, realtors, and hard money lenders in California, for example, can only help you to find opportunities, cut costs, and engineer greater profits when it comes to fix and flip projects.
Your success relies, to a degree, on the input and actions of others. It therefore behooves you to spend some time cultivating a robust network of industry contacts.
5. Learn All You Can
The more you know, the better prepared you will be to succeed when you fix and flip homes. Whether you take classes, you find an experienced mentor, or you enter into a partnership with an existing operation, gaining an understanding of the ins and outs of house flipping is essential to ongoing success.