One of the most fulfilling things anybody can do is make something new from the old, and that’s the common theme of house flipping. From old wooden floorboards to cracked and faded paint jobs and many more, flipping houses require a ton of effort, but the end results are rewarding. You can discuss the details and technicalities of acquiring a house and flipping it with your real estate agent and other institutions. You can even have a private real-estate lender to help complete the project. However, the process of selection is solely yours.
What Is House Flipping?
House flipping is a lucrative business, especially when a house is resold at a higher price than it was initially worth. It is when an investor purchases a home at a lower price, repairs and improves its condition, and sells it for profit. In fact, the last quarter of 2020 recorded the highest profit in house flipping in 20 years.
Where Can You Find a House to Flip?
A good place to start is by compiling a list of viable homes to flip. One common way of looking for these houses is by keeping an eye out on auctions and foreclosed homes. Other than that, online sources and websites provide a list of houses up for grabs, too. Another thing that helps is expanding your network. Join interest groups online. This can be a great resource for tips and leads.
Looking at distressed homes can make anyone nervous before considering making the purchase. Don’t shy away from worn-down homes. Sometimes, what all these homes need is a paint job, replacement of fixtures, and the like. Shelling out money is still a must for repairs. But when done right, there’s a lot of added value. The idea is to entertain houses with prices below the market value due to their worn-down condition. To get the best return on investment, add value through repairs.
Here are basic tips worth studying before making the buy.
Is the Price Right?
Even when the goal is to increase the value of a house through repairs, there should be a threshold. On the other hand, it would be counterproductive to skimp on repairs, too. Use the 70% rule in this regard. This rule states that an investor should not pay more than 70% of the property’s after-repair value or ARV. An ARV is the overall value of a house after it’s been fully repaired.
To see if a house is worth flipping, here’s how you find out. For example, Home A’s ARV is $125,000, and it needs $15,000 worth of repairs. Applying the 70% rule, the investor should not pay more than $72,500 for home A. The calculation goes as follows: $125,000 x 0.70 = $87,500 – $15,000 = $72,500.
Either way, it’s best to crunch up numbers on repairs beforehand. If needed, don’t hesitate to consult contractors or other professionals in your area.
Is It an Ideal Location?
This is probably outside the bounds of the property, but the convenience of being close to essential establishments can be attractive to a wide pool of buyers, especially for families and retired adults. Establishments, including a grocery store, a mall, or an economic center, may add to its value. Other essential places include parks, hospitals, and the like. It also helps if the property itself is accessible via public transportation.
Having good-looking or well-managed houses surrounding the property is always a good sign. It doesn’t just say something about the neighborhood; it’s telling of the neighbors your future buyer will have, most especially if the buyer has a family. Moving is a big adjustment for a family, but all the more for a child. Experiencing this transition should be pleasant if the new environment is safe to explore in, comfortable enough to settle in, and surrounded by good neighbors.
Does It Have Ample Space?
The bigger pool of buyers is the middle class. To have better chances, consider catering the price range, design, layout, and size of the property to middle-class buyers. Ideally, it should have a garage, front yard, and a spacious backyard in case they want to have future renovations and redesigns done. This may even be the factor that makes them want to seal the deal.
Were You Patient?
Many house flippers might have made the mistake of getting the first house they see only to recall this decision as rash and not well thought out. Just because you want to get on a flipping project as soon as possible doesn’t mean that you should take on the first prospect you see.
It’s important to realize that flipping a house doesn’t happen overnight, and mishaps may even occur. Later on, you might realize that the layout is not preferable or that there were other repairs you failed to account for. That’s why waiting on the right house makes a difference. Take the time to assess and study your options. Don’t take all the time, though, as it might go to another’s hands.
The Bottom Line
Flipping a house is never without risk. From purchasing it to repairing it, anything can happen. That’s why it’s best to make calculated decisions and never underestimate any aspect of the project.