Things To Consider Regarding Flipping Houses
With the housing market showing sustained signs of recovery, it is a good time to learn about how to profit from flipping houses. If you want to go into the business of flipping houses to make fast money on real estate transactions or you just want to learn how to improve the value of your home, so you can sell it for top dollar some day, learning the art of fixing up and flipping houses is well worth the effort.
House flipping is a tough and risky business, but it can also be highly lucrative and rewarding for those who understand the art of identifying undervalued homes, renovating them, and selling them for a profit. Like any business venture, the more research you do before you commit to house flipping, the better chances you will have of succeeding.
How To Profit From Flipping Houses | Taking The First Step
Two questions that have to be answered before even considering venturing into flipping houses for a profit are: 1) is the housing market sufficiently strong to find buyers? and 2) is the area you are considering doing house flipping in suitable?
If the housing market is not sufficiently strong to find buyers, it is not a good time to get into the house flipping business. Gauging if the area you are considering flipping in is suitable is a bit harder to determine. Essentially, the more desirable areas and areas that have more home buyers are going to be easier places to sell houses at the end of a flip, and therefore are the best areas to engage in house flipping. Do not forget the old adage, “Never build the best house in a bad neighborhood.” It doesn’t matter how nice you make a house, if buyers do not want to live there, you will not find buyers, at least not any buyers that are willing to pay a price high enough to make a flip profitable.
The Steps To Profit Flipping Houses
While there are many ways to flip houses, the following steps are critical to a successful and profitable house flip.
- Make Sure You Have The Financial Resources – While it may seem obvious, it has to be emphasized that it takes money to make money when flipping houses. In order to buy houses at auction or from distressed sellers on the cheap, you need to have cash available to make the purchase in full. Then, once you own the house, you have to have sufficient financial resources to refurbish it. Additional costs to consider include: closing fees for both buying and selling the property, property taxes, insurance, permit and/or homeowner association fees, and utilities. There will also be advertising fees when trying to sell the property and costs associated with staging the home to make it more appealing to buyers. House flipping is full of unexpected surprises, so any initial cost estimate for fixing up a house should include at least a 25% contingency for cost overruns.
- Make Sure You Have Reliable Contractors to Work With – While some of the work associated with refurbishing a house flip can be done by the flipper to save money, a lot of the work has to be done by contractors to get it done right and make it look appealing to buyers. This can be a big problem for flippers, because turning around a flip quickly is often key to making a profit from a house flip. It is important to find contractors to work with that are reliable and finish their work on time. If necessary, pay them small bonuses when the meet deadlines to encourage them to finish the work on time and to generate good will with them.
- Be Realistic About Pricing Your House – The general price you can sell the refurbished house for should be considered before you even buy the house, so you can assess whether or not the flip has the potential to be profitable. During the renovations, it is possible that the housing market could change and selling prices may either be more or less favorable when you are ready to list the house for sale. Look at comparable sales over the past month or two and set your price at or just above the high end of the range. You want to give yourself room for negotiation to protect your profit margin, in case a buyer wants to negotiate the price down. However, since you are presenting a refurbished house with numerous upgrades that is in “move in condition”, you do not want to sell yourself short, so list it on the high side, but not so high that people will not even look at it.
Ways To Increase Your Chances of Profiting From Flipping Houses
Flipping houses for a profit is difficult because there are so many variables that affect home prices and so many potential surprises that await house flippers once they get to work renovating a house. However, there are ways to increase your changes of profiting from house flips, such as:
- Do the necessary research up front to ensure that once the home you buy for a flip is completed, there will be sufficient buyers to meet your asking price.
- Wait patiently for the right house in the right neighborhood and pay cash. If you try to finance a house flip, you will likely pay a lot of fees and interest that will eat into profits and will also put you under pressure to sell the house. Whereas, if you pay cash, you will avoid the fees and interest, and can rent the house if market conditions turn unfavorable and then sell it when the time is right.
- Try to identify areas that are up and coming that will see increased homebuyer interest in the future. Also, keep an ear to the street to find out if anything is coming that will change home values in an area you are considering flipping in. For example, houses with natural gas heat generally sell for 4% more than houses with other heating systems, because homebuyers prefer natural gas heat. If an area just had natural gas lines installed or is slated to get natural gas soon, then it may be a perfect place to buy houses and convert them to natural gas heat to increase the resale value of the houses.
- Make sure you concentrate on the things that increase a house’s value and please homebuyers. For example, curb appeal is very important for selling a house, so don’t neglect the front yard and the front entranceway. Also, kitchens and bathrooms are very important to homebuyers, so focus on making upgrades in these areas that buyers want in a modern house. If the house is in an area that attracts families, consider making the backyard family friendly by installing a patio or deck and fully fencing in the backyard.
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