Before you even think about flipping a house, banish the thought that it is a sure-fire way to make money. Flipping a house is hard work-profitable if you avoid making any serious mistakes-so banish those dreams of easy money. Flipping a house requires a commitment of time and money, plus a lot of hard work and some luck. If done incorrectly, an investor can make less than if they invested in another commodity; yet with a little knowledge and some good timing, an investor will be well on their way to making a fortune.
Preparing to do a flip
The work needs to start before you even look for a house to flip. The first thing you need is the money both to buy the house and do the renovations. Resist the urge to put a down payment on the property-it is best that you finance the property at 100%, so that you have money to do the renovations. It is easier to get the necessary loan if you are going to live in the house, but that is not necessarily ideal for your peace of mind (construction is a loud and dirty experience).
The second thing is to find contractors. It might sound strange to have them before you even find a place to flip, but it is a necessity. You don’t want to pick the contractor out of the phone book-you want to a referral and you are going to want to have several bids for the work that you plan on doing.
Also make sure that you have the place insured as quickly as possible.
Finding a house to flip
You want to locate a house that is in a good neighborhood, a place that if it was fixed up would sell fast. You are looking for an eye-sore. Ignore houses that need major work-you want to avoid having to do structural repairs-much of that type of repair is hidden and expensive. The ideal is to find a house that only needs cosmetic changes, something that will clean up nicely.
Make sure that you get the house inspected before you buy it. You should pick your own inspector, rather than just blindly following the agent’s recommendation. The idea is to become aware of any defeats that will be large money drains to fix. Some agents recommend inspectors that they know overlook things in order to increase the likelihood of selling you the house.
Have a plan
Know what you are going to do before you buy the house. You don’t want to lose a couple of weeks as you make up your mind on what you want to do-the goal here is to start work on the house as soon as possible.
As soon as you close, sign the contact with the contractor; you want a contact that insures that the contractor does not get paid unless they actually do the work.
The key renovations to make
As I stated earlier, you want to avoid houses that need structural repairs; you want to focus on changes that will give you the best return for your money. Upgrading bathrooms and kitchens will get you the best return for your money. Flooring is also good for returns. Fixing up and painting the outside of the house will help you sell it, as some landscaping.
Doing the work
Do as much of the work yourself as you can-painting, installing floors and carpeting. Do everything that you can as long as you can do it well enough to meet the requirements of the local building inspection standards. It is better to have someone else do the work if you are not skilled enough to pass a building inspection.
Selling the house
You want to have the house on the market from the moment that you close on it; you also want to market it yourself before listing it with a Realtor. You should know your selling price before you even brought the place-don’t be afraid to market the place before you are completely finished with renovations.
A Final Consideration
Whenever selling a house, one must be prepared for the possibility of it taking longer than planned. One should leave money in the budget for the possibility of having to hold onto the house longer than you would like to.
Remember you want the house to look fresh, not lived in and worn out. Resist the urge to rent out the house if you don’t sell it as fast as you like-renters will decrease the value of your cosmetic changes.
Renting it should be your last option, make sure that you have enough money available so you don’t have to.