Thinking of immersing yourself in the wonderful world of flipping houses? Well, you’re not alone. Around 207,000 properties are purchased and flipped every year in the US!
For good reason, too. Do it right and this popular practice is an effective way to turn a swift and sizeable profit. You purchase a house in need of repair, fund the renovations, and then sell it for a return.
…That’s the idea, anyway.
In reality, this is a risky business, and hiccups and unexpected expenses are commonplace- especially for newbies who don’t fully understand how to flip a house before they begin. Want to learn more about what’s involved so you can avoid such negative outcomes and hit a home run instead?
Let us help! Check out these 5 tricks and tips for flipping a house with greater success.
1. Focus On the Location
Location’s everything when it comes to buying and flipping houses. Why?
Because there are all sorts of ways to make a house better, but improving the neighborhood’s almost impossible! Take our advice and focus on houses for sale in up-and-coming areas. Search online and in-person (or speak to a local realtor), exploring cities and neighborhoods for signs of rising property sales in thriving cities.
Steer clear of places with an abundance of supply but minimal demand too. A big supply of houses for sale is a red flag that can indicate an array of negative factors. The local economy might be struggling, for example, people might be leaving the area, and crime rates might be climbing.
2. Consider the Condition
Anyone who is familiar with renovation projects knows all too well how common and costly nasty surprises can be! As a result, anybody wondering how to flip a house must a) search for properties in good condition and b) educate themselves on what a structurally sound property looks like (particularly if they’re considering older buildings).
Of course, official home inspections make a big difference here. Yet they’re not always allowed if you’re buying a house at a property auction! In these situations, we strongly suggest asking someone with a background in construction (and who knows about roofing, electrics, and plumbing) to investigate the house with you.
In all honesty, the best way forward is to invest in houses where the necessary updates will be quick and easy. Big projects are tempting because of the larger potential returns, yet they’re almost always full of expensive surprises! You’re onto a winner if you can transform the appearance of a home by doing things like landscaping the front yard, painting the walls, re-carpeting floors, adding new hardware, and repairing kitchen cabinets.
3. Abide By the 70% Rule
The secret to finding success when flipping houses is ensuring you never pay too much for the property! That’s where the 70% rule comes into play. This rule states that investors shouldn’t spend more than, you guessed it, 70% of the value of their final investment (i.e. the after-repair value or ARV, for short) minus the cost of repairs/renovations.
Here’s an example to outline the process:
For the sake of simplicity, imagine that the ARV for a house is $100,000 and it needs $10,000 worth of work done on it. Follow the 70% rule and the maximum you should pay for this particular property is $60,000. Because (100,000 x 0.70) – 10,000 = 60,000.
4. Have Access to Enough Cash
There’s no denying it: buying houses to flip costs serious money! If you want to be successful, it’s imperative that you have access to enough capital to:
- Cover a sizeable down payment,
- Pay for the necessary renovations, and
- Handle nasty surprises.
It’s worth re-emphasizing the down payment point. Putting an unsubstantial deposit on a property can cause myriad problems for new flippers- especially if you follow it up by relying on credit cards to cover the home improvements. You’d be in for a torrid time if the house took months to sell or the renovation costs ran over budget!
Avoid that fate by having sufficient cash to call upon. If you’re falling short, you could think about getting a fix and flip loan from a reputable lender who offers good rates.
5. Hedge Your Bets
Anyone who’s flipping a home wants it to sell as quickly and for as much profit as possible. Unfortunately, there are numerous factors beyond your control that can thwart your efforts. Here are just a few examples:
- The economy can collapse
- The real estate market can shift
- The legal situation can change and financing regulations may alter with it
In any of these cases, your ability to sell for top dollar suffers! Throw in the common mistakes flippers make (such as overvaluing the property in the first place, taking forever to finish the renovations, and/or overspending on them) and you’re in the for trouble.
Want our advice? Have an alternative exit strategy to hedge against possible worst-case scenarios. You could hold onto the property and rent it out instead of making a loss, for instance. Ensure that any house you purchase will still make money after expenses (such as mortgage payments, ongoing maintenance, and marketing rooms, etc) and you’d still turn a profit on your investment.
Remember These Tips on How to Flip a House
Increasing numbers of people are trying their hand at flipping houses nowadays. Lured by the promise of impressive returns, they rush to purchase the first project they encounter, convinced it’s their ticket to riches. More often than not, though, they soon realize that the process involved is both harder and less romantic than they first thought!
That’s why learning how to flip a house beforehand is so important. With a clear idea of what to do and how to do it, you’re far more likely to enjoy a positive (and profitable) experience. With any luck, the tips and tricks in this article will help in that regard.
Want to take your understanding of buying and flipping a house to the next level? Search ‘flipping’ on the website now.
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