So you’re thinking about flipping a house? You like the idea of raking in thousands of dollars with minimal effort? Doesn’t sound too bad, does it? But if, in fact, that’s your idea of how the process shakes out, you need to hold up a second. False ideas about the simplicity of flipping houses and the inevitable windfall have taken root in the collective mind. The term itself is part of the problem. How hard is it to flip something? And anyone who’s flip-curious has heard a too-good-to-be-true story that goes something like: Tim’s cousin John had no clue what he was doing, but he flipped a house anyway and pocketed $75,000.
We’re here for a dose of truth. And, no, we aren’t here to try to talk you out of the flip. We just want to nix misconceptions so that when you’re ready to whip out those tile tools and dive in, you have a realistic idea of the process and a thorough understanding of what it takes to make money. So saddle up, rookie flipper, and let this rundown for beginners guide you on the path to success.
Understand the market inside and out.
Let’s cook up a little hypothetical here: Say the housing market is red hot, especially in a trendy neighborhood where you spot a fixer-upper listed for $225,000. The area is dotted with homes listed in the $400,000+ range. This could be a good opportunity to turn a tidy little profit.
But you need to dig into the numbers before fantasies of a $175,000 profit overwhelm your rational side and push you into action. First off, this $225,000 house: How much work does it need, and what’s that going to run you? The houses selling for $400,000, are they renovated? Are they former one-story homes with second floors added? If so, that required serious expense.
You have to be circumspect. It’s hard to know when to pull the trigger, especially if you’re new to the game. And you always want to assume unexpected expenses will pop up along the way. In addition, you need to take financing and transaction fees into account. And if that house has been on the market for an extended period, there’s probably a good reason. Other investors have surely considered the house and passed on it. So is this $225,000 house the right buy for you, rookie flipper? Maybe? That brings us to the next critical element of the process …
Bring on a building inspector.
If you’re working on a tight budget, like most beginners are, you need to make smart decisions up and down the line. And one of the most important decisions of all should come before you lock down that contract and commit to the flip: Hire a professional inspector to scrutinize the home. You might be tempted to forgo that step and keep that money in your pocket. But you know what will guarantee a tremendous failure, rookie flipper? An overlooked mega-expense. We’re talking foundation and structural issues, faulty wiring that needs to be ripped out and redone, a roof that’s been allowing moisture into the home for years. You’ve heard of black mold?
Now, even homes that need massive renovation can be rehabbed and flipped for profit, but, for your inaugural effort, it’s best to focus on a house with good bones that requires little more than cosmetic upgrades.
Where do you allocate renovation bucks?
Okay, so you’ve done your due diligence and found a good deal on a structurally sound eyesore. Maybe “eyesore” is a little exaggerated; let’s just say a makeover is in order. So, let’s boost that curb appeal without dropping too much money. From adding fresh paint to inexpensive yet tasteful landscape lighting, there are many ways you can go about pulling this off on the cheap.
Of course, any work you do on your own will save money and bump up that bottom line. Don’t hesitate to get after it. Handle painting yourself if you’re comfortable with it. Surely, you can at least handle basic lawn and garden matters?
Don’t get too aggressive.
Some first-time flippers become a little too enamored with renovations and go overboard. That can be a costly mistake. Understand that most homebuyers are going to come in and make changes to the changes you’ve made. You want to present them with a space that gets their creative juices flowing. We all have different tastes, so don’t let your love for all things Art Deco run roughshod over the space. Now, this isn’t to say you want to present a blank canvas. But as soon as you’re dropping bucks on aspects of the home that might not appeal to the average buyer’s sensibility, you’re probably wasting money.
And in instances when you’re dealing with a bathroom or kitchen that simply begs for updates before you list the place, gain a feel for the interior style of houses yours will be competing against and do your best to mirror that approach.
Hire the right contractor.
When you need to bring on professionals, be as circumspect as you were when shopping for the right house to buy. Compile a list of reputable contractors, check out examples of their work, and speak with former clients. Making a mistake here can take a wrecking ball to your budget and ruin any chance of turning your first flip into a success.