House Flipping – What You Need To Consider!
House flipping can be a very lucrative and financially freeing source of income, but there is a lot to think about before you begin knocking down walls and ripping up that awful 80’s carpet (don’t worry we will get there). If you are a house flipping virgin and want to get into the business, keep reading to find out a few things to consider before you start!
Let’s start with the boring part. Flipping houses (as lucrative as it can be) is very expensive. The most important thing to do before starting is getting all of your finances in order. This will give you a better idea of what sort of budget you are working with, and that will help you with finding what range of houses you can buy and flip, as well as show you how much you can spend on materials and labour to fix the home.
Once your finances are set and you have decided to move forward with the process, I would suggest getting in touch with your real estate agent or give us a call if you don’t have an agent (shameless plug, I know). A real estate agent can be your greatest asset in the process as they can connect you with many specialists such as a mortgage specialist before buying a property, and more importantly help you with the buying and selling process of your investment. Sit down with your agent and discuss what you are looking to spend on your property, and have them set up a list of options for you to see and pick the property that makes the most sense. Keep in mind that you will need to pay the mortgage as you are flipping the house, I would recommend that you put some extra money to the side for these sorts of payments. Your contractor may need some extra time than expected to finish the house, or the house may be on the market longer than expected, better to be safe and keep money aside for cases like this.
Ok, so you have found the perfect property with your realtor and your offer has been accepted, the property is yours! Now the fun stuff begins, take a long walk through your property and prioritize what needs to be done to bring the house into this century. Fix anything that is broken or run down, and make sure the curb appeal is clean and attractive as this is the first thing people will see when coming to view the property. Since this will be your first flip, I would suggest buying a property that needs mostly cosmetic updates. Your total return on investment may be less, but you will pay less out of pocket fixing the house. New floors, fresh paint throughout, and updated kitchen cabinets and counter tops can play a huge role in lower cost options when making the house look fresh and new. You can save even more money by painting the house yourself, as well as changing the cabinet handles and painting the cabinets on your own too. The sweat equity pays off in the end if you have the time for it!
Get as many quotes as possible when picking your materials. Go to different liquidation and tile/flooring stores before picking one, and talk to your contractor as they may have connections that can get you cheaper materials. Speaking from experience, I strongly recommend picking floor materials and tile patters that are fairly basic in this era. This will come into play when you list the home, as the home will appeal to more buyers. The same rule goes for paint, different shades of grey and white are popular as it allows the buyer to picture the home as a blank canvas that they can now make their own. As you work with your contractor with the plan for the house keep in mind your budget for renovations and stick to it. Start with the essentials and add more if the budget allows for it.
A few months have passed (depending on how much work has been done) and your house is now renovated. For obvious reasons you will want to bring in a cleaning team to make your new project clean and sparkly. From here we have a few options that you will discuss with your realtor. To stage or not to stage? If you have room in the budget this is a great way to show potential buyers what the house will look like with furniture in it because lets face it not all buyers have the imagination to picture the house with furniture so if you can do the thinking for them, the more likely they will be to buy your home. Stay tuned for more on staging in an upcoming blog post!
Finally, sit down with your agent and take a look through comparable properties in the area. This will give you an idea of how much to list your home at, but your agent should be able to take the reins in this discussion with regards to suggesting the best price to list the house at so that it is not on the market for months at a time. Consider what you bought the home for, the total renovation cost, and how much you would ideally like to make, when picking the list price.
Once the house sells you are ready to repeat the process. If you are happy with the return then stick to the same price range when buying the next home. If you want a more elaborate project and you have more money to spend, then buy something more run down to grow the potential that you can make on the investment.
This type of income is something that takes a lot of thinking and planning at every stage, but if done carefully this is a great way to become your own boss and financially free over time.
Have more questions about house flipping, or want advice on buying your next investment?
Get in touch with us and we can set up a time to meet and help you through every step.