Tempted to quit the day job and become a fix and flip real estate investor? While the TV shows make it look easy, there’s a lot that can go wrong in this very active investment, and it’s certainly no way to make a quick and easy buck. So, before you wave goodbye to your boss, why not take a look at the following 10 tips for a successful house flip.
Get Your Hands on Cold Hard Cash
Contrary to popular belief, a great credit score isn’t necessarily an essential requirement for the would-be flipper. More often than not, traditional loans take too long and charge too much in interest, in a business where time is money. Instead, you’ll need cash. Rather than sinking all of your personal savings into this risky business, you can approach a hard money lender.
There are certain lenders that specialize in lending to flippers, with flexible programs in place. You can negotiate with some hard cash lenders for a larger sum in return for a slice of the profits once the home is resold, though this can be a difficult sell for a newbie. Instead, you might ask friends and family for help, seek out an investor, or negotiate a lower sale price with the seller, in return for a slice of the eventual profits.
Make a Plan and Stick to it
It’s important to go into this business with your eyes open and a solid plan in place. A solid plan based on thorough research will help things run more smoothly, and it’s important to take into account the various risks involved. In this way, you can carry out important risk management, and budget in a way that protects your interests if things don’t go as well as you’d hoped.
Know Your Numbers
As part of your plan, you need to create a carefully considered budget. Understanding the numbers involved is essential, and will prevent nasty expenses further down the line. You’ll need to calculate every possible cost, from real estate commissions and property taxes to closing costs and materials, among a myriad of other potential fees and costs.
The right location can make or break your fix and flip endeavors, so do your research and choose wisely. Sage advice is to buy the worst house in the best neighborhood you can afford. Alternatively, seek out upcoming neighborhoods, that are focusing on improving infrastructure. It’s also important to take into consideration factors such as school districts, and local and nearby crime rates. A dilapidated house in a great neighborhood can only rise in value.
Have it Inspected
One golden rule is to never buy a property that you haven’t seen in person first. No matter how great online photos look, you never know what lurks beneath the surface. Indeed, many flippers tell horror stories of mold-infested shacks, shoddy foundations, and roofs about to collapse. Such issues can easily take you over budget, and you may never make a return on your investment. Having the home inspected by a professional is always a good idea, especially if you’re not confident that you can see the signs that point to potentially major defects.
Choose Quick and Easy Fixes
Following on from the previous point, it’s best to seek out homes that can be fixed up relatively quickly and easily. Major structural repairs, such as replacing the roof, fixing the foundations, or rewiring the entire house cost a lot of money and time — two things the first-time flipper is likely to be in short supply of.
Instead, focus on cosmetic upgrades, paying close attention to floors, walls, and ceilings, the three things buyers first see and focus on. A coat of paint, replacing carpets with hardwood floors, and swapping out light fittings and switches can transform an ugly home. Plus, such jobs can often be carried out by yourself if you’re handy around the home.
Don’t Overdo it
It’s important to know where to draw the line, however, and knowing which upgrades to make is the sign of a successful flipper. For example, if you’ve bought a home in a lower value neighborhood, there’s no point in fitting it with top of the range appliances, hardwood floors, and marble kitchen counters. By doing this, you’ve essentially priced yourself out of the local market. Instead, opt for mid-range finishes, with perhaps the occasional higher quality touch to draw in larger offers, such as a wall-mounted hood for the stove.
Know Your Market
To prevent overdoing it, you need to know who your target market is, i.e. who is going to buy your flipped home from you. Knowing this allows you to anticipate how much they’re willing to spend and tailor your renovations to fit this budget. Do your local market research and see how much similar homes have sold for recently, giving you a figure to aim for. If you can’t make the renovations you want without making a good profit, consider downgrading the renovations, or seeking elsewhere.
Don’t Dive in
You may be tempted to quit the day job and live the high life, but a little prudence can go a long way. There’s no reason to quit your job outright, and doing so would be extremely risky, as the real estate market is extremely volatile. It doesn’t take much for circumstances to change, and you could very easily lose out. It’s wise to dedicate only your spare time to your first fix and flip, and only consider going full-time once you’ve got 2 or 3 success stories under your belt.
If you do eventually take the plunge, take it seriously and get educated. You can save a lot of money by earning your own realtor stripes and taking other courses and qualifications in the field. This knowledge puts you in a stronger position to make a success out of this extremely tricky business.