Flipping houses is a serious business where large investments can reap large rewards or large losses. It is not as easy as seen on TV! Even experienced flippers sometimes miss the mark.
If you are considering flipping homes for the first time, here are some tricks to put you on the path to success.
1. Do Your Homework
Many flips fail due to lack of planning. Structure your business. Consult with lenders, tax planners, financial advisors, and real estate agents for the best strategy for this investment. Seek legal advice for structuring an LLC, corporation, etc. This is especially important when family and friends become involved in a joint venture.
2. Know the Neighborhood
Different neighborhoods in close proximity can yield totally different results. Hire a real estate agent to give you every detail imaginable regarding the areas you will be working in. Your agent will also closely work with you through the entire process. It’s crucial to remember that you flip a home for profit. Always default to what the market wants, not your personal tastes.
3. Beware of DIY
Remember: flipping is a business. Most flippers have day jobs which consume the majority of their time and talent. Successful flippers assemble a team of contractors to do the hard work. Interview contractors to become part of your team before you purchase a home.
4. Be Ready to Buy
Prices are escalating, the market is strengthening and, as a result, we are seeing fewer flips. Keep your finances in order so you're ready to purchase a property as soon as you find one. Know that many flippers, your competition, pay cash for properties.
5. Know the Municipality Rules and Regulations
Know the requirements of the city, county, and homeowners’ associations where you are buying. The better you understand the requirements, the fewer surprises you will have. What seems like a small electrical repair, for example, could require the entire electrical system being brought up to code.
6. The Remodeling Process
Keep detailed records of the cost of every improvement. The finished home will be worth much more than what you paid for it. The lender for the buyer often requests documentation from the seller to verify the new value of the home. Don't keep receipts in a shoe box. The more organized the information is, the better chance you have to complete the sale at the highest value possible.
7. Time is Money
The money meter starts running the minute you the purchase the property. Construction should begin immediately. Delays in the process often reflect a flipper who did not do their homework first. Holding costs rapidly eat into profit margins.
8. Have a Contingency Plan
Circumstances change quickly! Real estate values may drop or the remodeling costs may be higher than the initial estimates. These changes may take the profit out of selling the property. Consider renting the property until the market strengthens again.
While not as easy as the TV stars make it look, flipping can be a good, profitable business. Before you jump in with both feet, reach out to your real estate agent to chat about the best way to move ahead.
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