If you’re just getting started in real estate and you want to flip properties for money, there is a lot you need to know about fixing up a house.
Flipping houses requires right knowledge, a bit of luck, and some serious patience. It’s not as easy as it looks on TV. Shows make it look like all you have to do is find a cheap home for sale. Then, put in some hours of labor and resell it on the other end for a huge profit.
But nothing is that simple. Flipping houses is back-breaking work full of risk. But it’s also fun, exciting, and potentially incredibly lucrative. Keep reading to learn what you need to know so you can be successful with your first flip.
What Do You Need to Get Started?
When the housing market fell, many homes went into foreclosure. Some of those homes are still sitting empty to this day. But because of tighter lending standards, many potential buyers are being turned away.
That means that you are going to need a lot of cash if you plan on fixing up a house. If it’s possible, you want to try to use cash to purchase the house and for the renovations.
But if you are looking for a loan, you will definitely need to have a good credit score. It is also a good idea for you to have at least enough cash for the down payment on the house. This is so that you don’t have to pay for mortgage insurance on the property.
What Makes a Good Investment?
The most important part of finding a house to flip is choosing the right investment. You will need to consider factors like location and school districts.
The best home is one that is in a desirable neighborhood that has a down market. It should also be in a good school district if you want to sell the home quickly.
The home you choose should also be close to where you live. If you are going to be working on it all of the time, you don’t want to have to drive across town. You’re already going to be investing a lot of time in the property without adding a commute to it.
Finding a Quick Fixer-Upper
When you are fixing up a house, you don’t want to bite off more than you can chew. You need to find a place that has the right problems — ones that you can solve easily, and inexpensively.
Old carpet and dated wallpaper are easy fixes to make. By updating these features you can transform the entire interior of a home.
Some fixes that might require more work include foundational issues, mold, and roof replacement. Replacing a roof is not easy work and you will have to call in the professionals. If you’re interested in hiring someone to replace your roof, click here to learn more.
Give Buyers What They Want
There are some features you can focus on in a home that will give you a great return on your investment. One of these is flooring. People love homes that have uniform flooring, especially wood.
Another great place to spend some money is in the kitchen. For most buyers, it is the most important part of the house. You should be sure to fix up the kitchen before considering any bathroom ideas. Your money will be much better spent.
Other home improvements that maximize your return are refinishing a deck, adding storage space, updating curb appeal, and installing greener technologies.
Educate Yourself on Investment
If flipping were as easy as fixing up a house and putting it on the market, we would all be doing it. There are a lot of factors you need to investigate before you decide on an investment.
The first thing you need to do is get the lay of the land for your local real estate market. You need to know where people are moving and what the up and coming neighborhoods are.
You can also use your network to find a good house to flip. They can let you know about homes they have seen in foreclosure in their neighborhoods.
Finding Investment Capital
If you aren’t paying for your property with cash, then you are going to need to figure out how to pay for the flip. There are a few different strategies that people like to employ.
The first of those is conventional financing. If you have decent credit then you may be able to get a normal housing loan for your investment.
If that fails, your next option is to take out a line of home equity. If you have a home you have been paying on for many years, you may be able to access some of those funds now with a home equity loan. Talk to your bank for more information.
Another option is to find a hard money lender. These are people or private companies that like to take on high-risk loans while charging high fees and interest rates.
If you choose a hard money lender, you should definitely flip your property quickly to avoid interest payments piling up.
Find a Mentor
If you know anyone who has been successful fixing up a house and flipping it, then you should ask them to mentor you. You might want to include an incentive with your request, like free labor.
Their knowledge is hard-won and they will need to be motivated to pass it on. By offering a financial incentive, you are also showing respect for your tutor and letting them know that you value their knowledge and time.
How to Make an Offer
If you find a great home that is priced well, then you are probably going to have some competition when you make an offer. There are a lot of people who see flipping as their full-time job and they will probably know about the house too.
That means that you need to come out with a strong first offer. But you still don’t want to pay more than you have to. The more money you spend on the house, the less profit you will have in the long run and the less money you will have for fixing up a house.
To figure out what your offer should be, you should try to estimate what the repairs will cost as well as what the interest and taxes will be on the home. Then you should take this number and add 20% just to be safe.
By adding together those costs with the purchase price of the home, you can compare it to what updated homes of the same size and in the same neighborhood are selling for. This is how you calculate your potential profit. If you can’t get the house for the price you need, then you should move on to the next.
How to Manage Projects
In order to get working quickly, you need to figure out what projects you are going to take on yourself and what you are going to hire a contractor to handle.
You may also need to get some permits before you are able to start fixing up a house. If you don’t have the proper permits, it can cause serious delays for your project and you may be hit with fines from city inspectors.
Get In and Out ASAP
The amount of time between your purchase and the sale of the home will have a huge impact on the amount of profit you will be able to make. All of your money will be tied up in that home until it sells.
Most people experienced at fixing up a house try to get in and out of a home in 90 days. This is because 90 days is the minimum amount of time you have to own a property before you can sell it for more than 20% more than the original purchase price. This rule was put in place during the housing crisis to keep people from sitting on properties to sell them at inflated prices.
How to Relist and Sell
Once you have finished fixing up a house, it will be time to put it on the market. If you choose to sell the home yourself, you should be sure you are very well versed in the real estate in your area.
You should also have good availability so that when someone schedules a showing, you can be around to let them in.
Why Use a Real Estate Agent
It is a much better idea to hire a real estate agent to handle the sale of your investment. They have access to a database of buyers and know what the current market conditions are.
Their skills and network may be just what you need to close for the right price and do it quickly.
Fixing Up a House — The Bottom Line
Getting into real estate is a great move for people who want to reinvent their lives. Flipping houses is an all-consuming process that requires a lot of thought, a large amount of capital and the right team of people in place to make it happen.
If you are looking for more tips to improve your life, check out some more of our guides today.