Top 5 “Must Haves” When Flipping Property

Flipping  is a type of real estate investment strategy in which an investor purchases a property not to use, but with the intention of selling it for a profit.

In order for a house to be considered a flip, it must be bought with the intention of quickly reselling. The time between the purchase and the sale often ranges from a couple months up to a year.

There are two different types of house flipping:

  • An investor buys a property that has potential to increase in value with the right repairs and updates. After completing the work, they make money from selling the house for a much higher price than what they purchased it for.
  • An investor buys a property in a market with rapidly rising house values. They make no updates, and after holding the property for a few months, they resell at a higher price and make a profit.

Let us focus on the first definition of house flipping. So, in this article we’ll look at the top five “must-haves” you’ll need to succeed in this endeavor.

Like any other small business, the work will require time and money, planning and patience, skill and effort. It will likely wind up being harder and more expensive than you ever imagined. Take it lightly at your peril If you’re just looking to get rich quick by flipping a house, you could end up in the poorhouse.

1. Money

Firstly, you have to limit your financial risk and maximize your return potential. Most importantly you must consider having a budget before everything else and plan your flip through cash purchase – not on borrowed money.

Have a budget. Here is why

Don’t wait until after you purchase an investment property to make a budget. Know your price range for purchasing a house, cost of repair or renovations and costs of selling the house, up front, before you seal the deal.

You will need to include the cost of holding the property, the capital gains tax and the commission agency fees you will pay your estate agent. Include in your budget all possible costs.

Surprise costs can make or break a flip, so be sure to do your housework here.

Finance the House Flip With Cash – not borrowed money. Here is why

Flipping houses can be a risky business, and it’s easy to see why adding debt into the mix only makes it more dangerous. Here’s why we are recommending that you flip a house with cash:

Using debt to finance a flip can cause you to act out of desperation. If you can’t get the house sold, you’re likely to lower your price and cut your profit. Cash-only house flippers can wait out a slow market because they don’t have interest payments piling up against them each day it doesn’t sell.

Most importantly, doing any kind of “investment” with debt is a dumb plan. Period. Trying to sell a flipped house for more money than you invested in it is already a risk—even with cash. Using debt in the process skyrockets your chance of losing money if there’s a hiccup in your plans.

2. Time

Renovating and flipping houses is a time-consuming project. It can take months to find and buy the right property. Once you own the house, you will need to invest time to fix it up. If you have a day job, time spent on demolition and construction can translate into lost evenings and weekends. If you pay somebody else to do the work, you will still spend more time than you expect supervising the activity and the costs of paying others will reduce your profit.

Once the work is done, you will need to schedule inspections to make sure the property complies with applicable building codes before you can sell it. If it does not, you will need to spend more time and money to bring it up to par.

3. Skilled personnel

There are several people that every potential investor/flipper should have in place before even considering entering into a real estate transaction of this nature.

Get builders and professionals such as carpenters and plumber, say building contractors in general, who have the knowledge, skills, and experience to fix a house.

4. Knowledge of Your Market

When it comes to making a profit on your flip, knowing how to find the right neighborhood is more important than finding the right property. The earning potential for a house in a great neighborhood is one of the most valuable assets in a situation where you’re trying to turn a profit.

Knowing the price that other houses are selling for in the area will be crucial when determining how much you’re going to profit on your project. Always expect to sell your flip on the lower end of what houses in the area are selling for.

This guarantees that you’ll be able to sell the house fast and still earn a profit.

If you find a great house that’s priced at MK130 million but most houses in the area are selling for a max of MK140 million it’s unlikely that after renovations you’ll be able to sell for more than what the rest of the market is priced at.

To be successful, know how to pick the right property, in the right location, at the right price.

5. Patience

Take your time and wait for the right property, do not rush to buy the first house that you see. You need to understand that buying and selling houses takes time and that the profit margins are sometimes slim.

The bottom line is that if you are thinking about flipping a house make sure you understand what it takes and the risks involved. Novice flippers can underestimate the time or money required and overestimate their skills and knowledge.

Finally, Remember You’re An Investor

One common mistake that people make when flipping a house is treating the flip house like it will be their future property. Don’t add all the fancy bells and whistles that you’d want in your own house.

The first reason for avoiding this, is that it will cost you time and money. The second reason is because you don’t know who your buyer is going to be.  Let’s face it, there are certain features that one house buyer looks for in a house that another buyer wouldn’t want!

There’s no point in adding amenities that the future owner isn’t going to appreciate or want. Keep it simple and stick to the basics. Your remodeled house is going to need to appeal to a broad audience.

It’s always best to pick standard wall colors and avoid any custom upgrades. Buy a house that needs more of a face lift than a house that needs to be completely rebuilt.

This will keep the cost of the upgrades to a minimum and will also require less time to make improvements. Avoid projects whose structural integrity has been compromised. Needing to start from scratch can be fine for a personal project that you intend to remodel for yourself.

If you find a flip that needs to be completely remodeled, this can end up costing you more in the long run than you may have planned for. Houses that need a complete remodel can end up surprising you with work that you didn’t expect would need to be completed. This can tamper with your budget and ultimately change how much of a profit you may have been expecting to make.

Best rule of thumb, renovate your flip house for the largest audience possible.

 

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