Flipping houses can be a very lucrative and exciting way to make thousands. You’ve all seen those flipping shows where the investors are raking in the dough and having a ball doing it.
STOP…. PUMP YOUR BRAKES!!! Things shown on TV are not necessarily reality. You could loose your shirt and be lead on a path of financial ruin.
Just like Steph Curry didn’t become the #1 point guard in the NBA overnight, you won’t become a great house flipper without some kind of guidance. Leverage the experience of other successful house flippers to go from bench warmer to an all-star.
Tip # 1- Buy it Right.
Buying your house at too high of a price could make it impossible to make a profit.
The sweet spot for the purchase price is 70% ARV (after repair value) – repairs.
Example: 0.7($100,000 ARV) -$30,000 repairs= $40,000 purchase price.
$40,000 is the highest and safest price you want to buy it. In some cities like Houston or Phoenix, the housing market is on fire. You will have competition from other house buyers, but stay firm with your price.
If you can get the price for lower, great, but going higher will decrease the “safe zone” for your margin of error. That safe zone is for whenever an unexpected repair rears its ugly head. Everyone loves surprises except during rehabbing a house.
Quick tip- Develop relationships with the “sell your house fast” local companies. They can locate houses that fit your price criteria.
Tip #2- Get Accurate Repair Costs.
How much it will cost to renovate the house is one of the most important numbers. Fortunately, this is one of the easiest steps. Get at least 3 estimates from reputable construction companies.
Cheaper is not always better. Contractor 3 might cost the least amount, but has less workers. This will cause your renovations to take longer to finish.
Time is money. If it takes Contractor 3 four weeks longer than Contractor 1 and is $5,000 cheaper, is he really cheaper? The objective is to get in and out quickly. Turn and burn baby.
Here is a spreadsheet I use to help me keep track of my renovations. It shows me what I have spent.
Tip #3- Know What Upgrades and Layouts Other Houses in the Neighborhood Have.
All of the houses have stainless steel appliances, granite, hardwood flooring with an open floor plan. You need to have to same to be as desirable.
You don’t absolutely have to have those upgrades, but your house will sell for less. Don’t leave it in the buyers’ hands to determine what it will cost to add them. They will always over estimate.
Quick tip- Visit a few houses for sale in the neighborhood to get a feel for what is selling. At the very least, you should look at pictures of the houses that sold and are currently on the market.
Tip # 4- Know How Long it will Take to Finish the Renovation.
This is important because you will have holding costs like interest (only if you borrowed money), property taxes, property insurance, utilities, and so on.
The longer it takes you to finish, the more those closing costs will eat into your profit. Going just 1 month over schedule can cost you big bucks. Luckily, your contractor will tell you how long the renovation will take.
Tip #5- Price it Right.
Price your house for what other similar houses in the neighborhood are selling for.
My recommendation is for you to hire a real estate agent and let them determine the selling price. Make sure they show comps, comparable sales, to justify the asking price. Their 3% commission is money well spent.