How to Flip Houses as an Investment Strategy
How to Flip Houses
Many real estate investors "flip” or “fix-n-flip” which means to buy and sell a property quickly for a profit. Not all flips need fixing, but typically it’s the rehabbers who make the most money by turning ugly houses into beautiful ones. The more value you add to a property and the quicker you can do it, the greater return on your investment. You can choose to do the work yourself if you know how and have the time, you can hire contractors, or both. If you don't know many local contractor's, an online review service such as Angie's List can be a big help.
Flipping property is not as easy as it looks on TV. It’s hard work and there’s a boatload of competition out there, which means that the obvious deals are gone in a heartbeat. Finding property below market value takes time and dedication, and once you find them, you'll need to move fast. But thousands of investors do it everyday, across the country and in all market conditions, so it’s definitely possible to be successful at flipping houses if you’re prepared. Know exactly and in advance where you’re getting the real estate financing to buy flips (your own cash, private lender, hard money, bank loan), and what that loan will cost you. No matter the source of your funding, also have cash reserves to cover the unexpected “what if” scenario. Real estate investors need to be in the "know" in order to Flip This House!
Know your market. Thoroughly study the houses that are currently for sale and also those that have recently sold. If your neighborhood has model homes, look at those as well because they can be great indicators of who your buyer will be and what they are looking for. Are they primarily families who need 3 or 4 bedrooms, or single business execs looking for smaller, upscale homes without a big lawn to take care of? Are granite countertops, whirlpool tubs and stainless steel appliances mandatory, or will new carpeting and fresh paint do it? When you add value to the property, make sure it’s appropriate for the market and the buyer.
Know when to say no. Professional inspectors, appraisers, and realtors can help you determine the after repair value (ARV). Professional contractors can help you determine the costs of the rehab that your market requires. Is there a big spread between the two? Ugly, stinky, outdated houses with peeling paint and overgrown bushes can become beautiful swans for $10,000. But if that same ugly duckling also has structural problems, untreated termite infestations, an odd floor plan that needs correcting, and a 50-year old electrical system, you could easily triple your rehab budget. Any big expense decreases your eventual profit, so be realistic about what you can do and will do, and still make money in a timely manner, especially if you're just learning how to flip houses.
Know all the (hidden) costs. Sometimes the margin between what it cost you to buy and rehab and what you can sell it for gets eaten up in hidden costs. Will your buyer likely need you to pay all or part of the closing costs or demand a home warranty? If so, add in a few thousand dollars of “lost” profit. Do homes in your area tend to stay on the market a while before they sell, requiring you to pay more holding costs (utilities, insurance, interest, etc.)? Keep in mind that the Federal Housing Administration (FHA) rules can be very anti-flipping. Houses sold less than 90 days after they were first purchased aren't always eligible for FHA mortgage insurance and if your buyer is getting an FHA loan, that could be a deal-breaker, or cause a huge delay. These days, loans generally take a lot longer to close, even for buyers with good credit using a local bank. Also take into consideration the short-term capital gains you’ll be required to pay on the profit you make on the sale.
Know your market. Thoroughly study the houses that are currently for sale and also those that have recently sold. If your neighborhood has model homes, look at those as well because they can be great indicators of who your buyer will be and what they are looking for. Are they primarily families who need 3 or 4 bedrooms, or single business execs looking for smaller, upscale homes without a big lawn to take care of? Are granite countertops, whirlpool tubs and stainless steel appliances mandatory, or will new carpeting and fresh paint do it? When you add value to the property, make sure it’s appropriate for the market and the buyer.
Know when to say no. Professional inspectors, appraisers, and realtors can help you determine the after repair value (ARV). Professional contractors can help you determine the costs of the rehab that your market requires. Is there a big spread between the two? Ugly, stinky, outdated houses with peeling paint and overgrown bushes can become beautiful swans for $10,000. But if that same ugly duckling also has structural problems, untreated termite infestations, an odd floor plan that needs correcting, and a 50-year old electrical system, you could easily triple your rehab budget. Any big expense decreases your eventual profit, so be realistic about what you can do and will do, and still make money in a timely manner, especially if you're just learning how to flip houses.
Know all the (hidden) costs. Sometimes the margin between what it cost you to buy and rehab and what you can sell it for gets eaten up in hidden costs. Will your buyer likely need you to pay all or part of the closing costs or demand a home warranty? If so, add in a few thousand dollars of “lost” profit. Do homes in your area tend to stay on the market a while before they sell, requiring you to pay more holding costs (utilities, insurance, interest, etc.)? Keep in mind that the Federal Housing Administration (FHA) rules can be very anti-flipping. Houses sold less than 90 days after they were first purchased aren't always eligible for FHA mortgage insurance and if your buyer is getting an FHA loan, that could be a deal-breaker, or cause a huge delay. These days, loans generally take a lot longer to close, even for buyers with good credit using a local bank. Also take into consideration the short-term capital gains you’ll be required to pay on the profit you make on the sale.
Flipping Property
Real Estate Deal Evaluation
Know your expectations. Learn everything you can about how to flip houses. Invest the time that's needed to learn the flipping business before rushing into it, but on the other hand don’t get so bogged down in the analysis that you never make the first deal. You can't go into flipping for the hype, but you can do it to gain financial security or financial independence. You can choose to do a couple of flips a year for the extra money while keeping your current job and enjoying the health benefits and paid vacations. Or after a string of successes, quit your job, and make flipping property your new business and turn it into a career. Do it for the right reasons and when it makes sense, as well as cents, in your life.
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Do Properties Sell Faster with Help from St. Joseph?
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It's been suggested that if a person takes a small statue of St. Joseph and buries it upside-down, facing the street and near the For Sale sign, that a property will sell much faster. While this has never been verified by an independent study, enough people believe it's true and buy these little statuettes.
Why St. Joseph if you're trying to flip this house? Well, among other things, St. Joseph is the patron saint of wheelwrights, workers, and carpenters. The carpentry part seems to have been extended to real estate in general, then specifically to selling it. Another theory says that this tradition dates to German carpenters who reputedly enhanced the foundations of the houses they built with a statue of St. Joseph and a prayer.
Whether or not you believe burying an inexpensive plastic statue of St. Joseph ensures a faster sale, the theories behind the legend are interesting. And if one is a devout believer in the saints’ ability to change lives and fortunes, it can’t really hurt to try, especially in this market!
Why St. Joseph if you're trying to flip this house? Well, among other things, St. Joseph is the patron saint of wheelwrights, workers, and carpenters. The carpentry part seems to have been extended to real estate in general, then specifically to selling it. Another theory says that this tradition dates to German carpenters who reputedly enhanced the foundations of the houses they built with a statue of St. Joseph and a prayer.
Whether or not you believe burying an inexpensive plastic statue of St. Joseph ensures a faster sale, the theories behind the legend are interesting. And if one is a devout believer in the saints’ ability to change lives and fortunes, it can’t really hurt to try, especially in this market!
Price It Right to Sell It Fast
Learn How to Flip Houses
If flipping property to make immediate money is your objective, then obviously you need to buy and sell the property as quickly as possible, so that you can collect your profit and move on to the next project. Purchasing a house and trying to sell it quickly at top dollar is pretty much a thing of the past. In today's market, offer the property below market value to guarantee a quicker sale. If you price the property at full market value (even if it's worth it), but end up holding it for 6 months, your profits will likely be eaten up by insurance, utilities, and other holding costs. Get the house on the market at a price that is going to blow the competition away, and you will sell it no matter the market conditions. Even with a general down housing market and the tightening of lending and credit markets across America, if you offer a great deal, buyers will jump on it. Yes, it was nice in the recent past to get top dollar for flips every time, but pricing it below market value today is just the thing to do in a slow market when trying to flip this house. More on Fast Fixer Up Profits here.
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