Many of us have seen those reality shows where people buy run down or cheap houses, make a few repairs and upgrades, then make a huge amount of money in a few weeks after selling the home. Well, that’s television for you, because flipping a house is a lot harder than the reality shows make it appear.
That being said, there are plenty of real estate investors who make quite a bit of money flipping houses, and it’s possible for you to do the same thing provided you’re willing to put in the hard work. Here are a few things you should know before you make your first flip.
Limit Your Financial Risk
In a reality show, flipping a house often has the drama of some unexpected doom. Things like a cracked foundation or an attic filled with termites that threaten to ruin the flip. While these are often hyped up for TV, the reality is that if you pay too much for a home without accounting for the cost of repairs and upgrades, your flip can turn into a flop.
Most seasoned investors use the 70% rule which basically states that you should not buy a home for more than 70% of the after repair value of a property. In other words, the after repair value is what the home is worth after your done making repairs and a few upgrades.
Make Sure You Have The Time And Expertise
Now let’s say you’ve settled on a home that needs some painting, floors, and a few other upgrades and repairs. Your next question is, who will make the repairs? and how fast can they be done? If you’re planning on making most of the repairs yourself, then you need to be certain you have the time to do it.
Television shows make the process of repairs and upgrades look fast and easy, but it’s anything but that. Scheduling professional contractors, repairmen, painters, and carpenters take time, and so does the work. If you plan on making most of the upgrades and repairs yourself, be certain that you can handle the job.
First-time home flippers often feel that they can do most of the work themselves in order to save money, then find themselves overwhelmed or under skilled to handle the job.
Find The Right House To Flip
Patience is a key part of being a successful house flipper. First, you must find a home that’s priced below its market value. It’s crucial to find the right home, at the right price, in the right location. That takes patience and the help of a well experienced Realtor. You don’t want to buy a home in a low-income neighborhood where homes are valued at $60,00 and try and sell it for $200,000.
Educate yourself on the trends, markets and home values in the areas where you intend to buy your first home. When it comes time to sell a home, you have to consider who your potential buyers are, what they can afford, and where they want to live. A doctor who earns $250,000 per year is not going to want to live in a low-income neighborhood no matter how nice the home is.
Flipping houses for a living can be a financially rewarding endeavor, but you have to know what you’re getting into and educate yourself on the process. There are many investors who started off flipping houses in their spare time just to get a feel for the process.
This is a good way to start for first-time flippers. Some of the best advice you can get is from someone who is already successful at flipping houses. Take some time to meet with other investors or attend a seminar on how to invest in real estate and flipping houses.