Ever since the house bubble, it seems like all anyone talks about is flipping houses. You see a dozen shows on TV about “fixer uppers” or “reno property” or “income property” and no doubt you hear it from your friends about how so and so is making a killing flipping houses. I’ll admit I’m a little bit bias.
I’ve started Flippingincome.com to show people there are a million things to flip but I’ve secluded houses simply because I felt most people don’t have the knowledge and more importantly the money to flip houses. Recently I’ve come to the conclusion that I shouldn’t make such assumptions, I should simply share information on all things that can be flipped. So from what I’ve gathered, these are the 5 most important tips you need to know about flipping houses.
Location, Location, Location
Ask any realtor and they will tell you the most important factor with houses is location. But just because one location is better than another doesn’t mean you should jump blindly in. Start with what you know and focus on the areas you’re familiar with. You should be able to answer simply questions like these: Is this an already established area with rising prices? Is this an area with good schools that will attract families? Is this a community popular with retirees? Knowing the areas will help you choose the most desirable homes and give you a leg up on all the other flippers that might not be as familiar as you are.
Besides just relying on your knowledge of the area, don’t forget doing your homework on the basics. This includes finding out the “comp” prices on recent sales and the average days it took to sell. The basics will give you an idea of how long you probably will be holding the property before flipping and how much to flip for. If you notice pricing in a particular area is rising quickly, perhaps your best bet is to rent it for a year or two to maximize profits.
Figure Out Your Budget
Flipping houses takes a lot of cash so make sure you figure out your budget in terms of what you can spend on the house and the renovations. Don’t short change anything, if anything make sure you over budget on what you’re going to spend. The last thing you want to do is run out of money mid renovation because then you’ll really be screwed. Price out your material costs and labor and make sure you shop around. Also make sure you price out and add in taxes, utilities and maintenance on the house for up to a year or less if your confident it will sell faster.
Once you have figured out your budget, make sure you do some math on the profit margin between “comp” houses and your fixer upper. Don’t jump the gun on making an offer because obviously if the reno cost + house cost is a lot more than the “comp” houses nearby, you probably want to rethink your decision. The margin you want to settle with is entirely up to you. Some flippers are willing to take 10% while others are looking to flip for 40-50% margins.
Be Smart With Renovations
This goes hand-in-hand with your knowledge of the area you’re flipping in. Make renovation decision not purely on your taste or renovation sake. Be smart with your renovations. If your area is a neighborhood with good schools, then most likely your buyer is a young family with kids. Younger families in the 20s, 30s or 40s tend to like open floor plans with contemporary tastes. With that in mind, open up the kitchen/family room to create that open floor plan. Focus on white trim around the house and make sure there are updated stainless steel appliances. If the area your focusing is a retirement area, look for a home with just one main level or a ranch style. If there are stairways, open them up and widen tight spaces. Make sure the home is easily accessible from the street—no big stairways up to the front door. And turn the yard into a patio for a maintenance-free outdoors.
Of course there are common renovations everyone enjoys. Clean and inviting front and back lawn is a no brainer and can be done cheaply with most landscapers. Kitchens are huge and if you don’t have the money to renovate it completely, adding a backsplash and putting in new stainless steal appliances makes a huge impact. You can also never go wrong with updated bathrooms.
Help Me Help You
Your realtor is supposed to help you sell your house but if he/she don’t know what work you put into the house, it’ll never get disclosed to the buyer. Help them sell your house. Make sure you disclose every thing that a buyer wants to hear. Mention any work to the HVAC, electrical and any structural problems that were repaired. Take a snapshot of a new roof or talk about when it was recently put on. Did you replace the windows? If so make sure you talk about them.
An added bonus; present a binder with all instruction booklets and warranties for all the appliances, washer/dryer, HVAC that you have added to the house. You can also display instructions next to any new “smart home” features, like thermostat, security, sound system and lighting controls. Let buyers know every detail.
Take pride in your completed renovation but don’t get too attached. You are in it to make a profit so don’t let emotions get in the way. Many first time flippers tend to get caught up in “do you have any idea how much time I put into this house?” and tries to sell above market value thinking they have a superior house to others. Buyers don’t care about the time or effort you put into the house, they only see the finished product. They have no idea how much stress you might have went through. They’ve probably been shopping the market and touring comparable homes. And they will use “comp” prices to make an offer.
If you done your math correctly, you’ll have a profit margin if you sell the house within the neighborhood price point. Your price will tell you if your under priced or over priced. Under priced and you’ll receive multiple offers and over priced you won’t get any offers for months or years. Make sure to stay within the price point of the neighborhood and keep checking “comp” prices so you can judge the market.
With these 5 tips, you’ll be making millions in no time! J/k, flipping houses is a bit more complicated then flipping board games, cars, clothes, thrift store finds, etc… simply because the capital required is enormous. One wrong flip can drain your life savings or put you in the hole for years. Even though these 5 tips will set you in the right direction, try to consult realtors, friends or even gurus on real flips and see if they can share some of their experiences and knowledge. Maybe partner up on your first few flips with someone who knows what they are doing. Good Luck!