I would say that real estate flipping can be fun sources of income. A lot of people make around $50,000 per flip but I also hear of people losing $10,000 or making $100,000. The flipping process only takes a couple of months (or less). Yeah, not bad! You can even make this your full time job if you want to learn how to be handy.
In a nutshell, house flipping involves buying an asset (in this case, a house) and then quickly selling it to gain profit. It’s an investment strategy that works out great if you know how to do it right.
In simple terms, this whole technique works by buying low (meaning below its market price) and then re-selling the asset at a much higher price. It’s simple, but effective. And obviously – profitable.
I also do the fix and flip approach every now and then, which is also effective and profitable, but more work is involved in this strategy. You see, you buy a house that needs some repairing, then repair and fix it up so as to increase its value. And then I sell it – for profit.
As you can see, there are different ways to flip a house and make money from it. Since I am in this line of business, and did my fair share of research, I now know what works and what won’t work for me. So let me share with you the do’s and don’t of house flipping so that you can make money from it too.
Always Make Sensible Purchasing Decisions
Although the concept of house flipping is very simple, you should be careful when transacting in this line of business. Remember, it involves a large sum of money as you will need to buy a house. Although it promises high profits, there are risks involved as well.
The first step that you must do, therefore, is to familiarize yourself with the whole scenario. Research and educate yourself on the prices of all the houses that have sold in the area you are looking to buy. You can also consult a realtor for this. Our realtor was gold when it came to this, he can look in his database and pull out all the houses sold in the last year and we can easily compare value.
Also, learn about sales contracts. When purchasing real estate properties, a written document which states the price, terms and conditions should be present. This is legally binding to both the seller and the buyer. You should have a lawyer to make sure that the contract is fair and agreeable to both parties.
Understanding the Risks
As with all business transactions, there are risks to house flipping too. If you decide to get a loan, for example, your debt can inflate while waiting for a potential future profit.
Ideally, house flipping is done quickly, which means quick profits and quick payments of loan. However, there will be times when you can sit on a property longer than expected. If this happens, interests on loan, mortgage, real estate tax and maintenance expenses can cause problems.
Also, the housing market can be unstable at times. You might need to sell a house for less than the amount that you bought it for.
Other things to consider would be how to renovate and fix a house if it has some damages. If you hire professional contractors for the project, this will add to your expenses. And should you decide to do the physical efforts yourself, how much time and energy are you willing to devote to it? Remember, your time is also equivalent to money.
The Real Estate Market
As a house flipper, it’s really important that you educate yourself about real estate marketing so that you can differentiate from a good deal and a bad deal. There are magazines that you can use as sources of information like Forbes, Money and Entrepreneur. If you really want to make money in this line of work, you have to understand it 100%.
Let me tell you a little trick to flipping a house. If you are familiar with the stock market, you can apply the same principles to buying and selling a house too.
Ok, so there’s the situation when there’s a high demand or a low demand for houses (like stocks). When there’s low demand, everyone will be trying to sell their homes for money. At this point in time, house prices will plummet and your profit margin when selling houses will be low. This is a bad time for house flipping because it would be very challenging to sell a house at a good price.
So, what’s the ideal time to flip a house?
The ideal time to make money with house flipping is when more people are in the market to buy houses than to sell them. If the economy is good and stable, you can expect this scenario more often.
Right Technique Vs. Wrong Technique
So let me tell you about an effective technique that I always do to make money off flipping a house.
First of all, I look for a house that can be improved with the least amount of time, money and labor involved. Also, I quickly detach myself from a house – no matter how promising and beautiful it is.
I tell myself that I am not buying this house for myself, I will not live in it, so I will not get emotionally attached to it (this takes a little bit of practice, by the way). And then I tell myself to work on it, improve it, and sell it for profit so I can take a GRAND vacation!
I also watch out for desperate circumstances like bankruptcy, divorce, death and the like. It’s not that I’m happy with these misfortunes, but those are great opportunities for house flipping. That’s all I’m saying.
I am also on the look out for distressed properties and houses in poor condition. My Australian Stud Muffin is a handyman so we work well as a team in the area of house flipping. He learned how to renovate on Youtube. (No joke) I also have a brother and friends who are experts in DIY jobs so renovating and remodelling houses is really not a problem for me when I’m house flipping.
How to Choose a House to Flip
I would suggest looking for low and middle range houses to flip especially if you’re just new in this business. The property should be something that an average family can afford so as to make sure that you can sell the house quickly (that’s always one of your priorities).
Also, typical families and house buyers look for homes with 3 or more bedrooms, so check on that too, when buying a house. There should also be a minimum of 2 bathrooms especially for 2-story houses. There should also be a bathtub, that way its easier to sell to young families.
Planning and Flipping Time
You know what? I noticed that I am becoming more and more organized as I age. LOL
Because time is money, I make it a point that a house is bought, repaired, and flipped as soon as possible. I find that having a checklist really helps as I can put a check mark on the list as I accomplish certain tasks.
I also make a timeline on my calendar – with realistic time frames and goals to accomplish things. From preparing the contract to renovating to showing the property to prospective buyers to selling – they’re all in a timeline.
I also coordinate with my team (comprised of my fiancé, brother and super-friends) so that I can arrange for blocks of time on the calendar for continuous work. If there are long weekends up ahead, these can be utilized for DIY construction work.
Make sure you always pay back your friends in favours too. If they need you, BE THERE!
It’s also important to review your progress regularly (every day, if possible) so that problems and delays can be addressed quickly.
Fixing the House – The Essentials
You need a plan when fixing a house, especially if it’s badly damaged. Your plan will pretty much depend on your time and budget.
Whatever the case may be, make sure that you tackle on fixing the most important things first. This way, if you run out money or if you see that your expenses are increasing, you can stop and just sell the house quickly.
The most essential fixes to focus on will be any structural damage, holes in the walls, the roof, the bathroom and kitchen. The other rooms in the house can survive with just a simple makeover.
Major Fixes and Must-Do Fixes
There are also other major fixes that you need to focus on, not just aesthetically, but for safety as well. If necessary, do a complete rewiring so that fire accidents and electrocution can be avoided. If you open up the walls, you actually by law have to fix whatever shit you found in there.
Fixing broken fixtures like showers, bathtubs, sinks would also be considered necessary. If you ignore these, it will give the house a really bad impression and lower its value. It’s the cheapest way to give the house a polished look.
A nice floor will also make a house more beautiful, and therefore saleable. If it needs re-carpeting, then do that. Or you can also install linoleum flooring if you are in a hurry and on a tight budget. Otherwise put hard-wood floors in. This gives your house a higher re-sell value.
Also, check on the walls and ceilings and make sure that there are no holes and cracks. If there are, patch these up. This is easy and cheap to do. You would be surprised what a nice paint job can do.
Peeling and poorly done paint can also affect a home’s salability. A fresh coat of paint can solve this problem and make the house look cleaner and lovelier as well.
Other easy-to-do fixes that should not be neglected include loose fittings, malfunctioned hinges, broken brackets, etc. Buyers expect these things to be in good condition when they buy a house.
Minor and Unnecessary Fixes
Some minor fixes are nice but are not really considered essential when flipping a house. These will cost money, of course, so you should check on your budget before tackling on minor fixes.
Some examples of minor fixes include repainting a house that’s already decently painted just to make it more attractive and appealing to the buying public. Changing old fittings into more modern designs can also make the internal features of a home more elegant.
Like I said, these will involve more time and money before you can finally sell a house, so I would suggest against unnecessary fixes for minor things. But of course, it can also be assumed that a beautiful house (inside and out) will have more interested buyers.
Important Things to Consider
Needless to say, presentation is very important. Just put yourself in the shoes of house buyers – of course you want a house that looks good. That’s why you should really work on enhancing the overall appearance of a house that you’re trying to sell.
You should also make sure that the house is safe and free from structural issues. It should pass building inspection and not cause any problem to the new owner.
Inexpensive Ways to Boost a Home’s Value
Keep in mind that you want to minimize on costs so as to enjoy a higher profit margin. So if you can get by with minimal works and repairs, that’s one of the best approaches to flipping a house.
There are several ways to make improvements that won’t cost you a fortune. Cleaning is one, so don’t just demolish and throw away things that can still look good once cleaned.
Repainting is another cheap way of giving a house a facelift without eating a big portion of your budget.
Accessorizing such as putting plants can also add color and beauty to an otherwise lifeless looking home. You don’t have to spend on landscaping for this. Potted plants placed on strategic locations will work out just fine.
To make money in house flipping, it’s important to stay focused on your goal. So resist the urge to do unnecessary and impractical renovations when there’s no need for it. Really, why remodel an already functioning and good looking kitchen or bathroom? That will only increase your expenses and delay the sale of the property.
Selling and Earning from House Flipping
Ah, this is really the best part of house flipping – the selling and earning part!
If you’re going to show the house to prospective buyers, make sure that it’s clean, organized, and attractive. Remember the power of first impressions. If the buyer has looked over several houses, your goal would be to be among the most memorable presentations so as to be considered.
Neutral colors are more attractive to average buyers, so try to adopt a simple motif throughout the house. And if you’re renting furniture to give the house a more “homey” appeal, go for simple ones. Furniture and fixtures that are too flashy can turn off a majority of buyers because your taste will probably be different from theirs. Keep it simple and elegant.
If you are not skilled in the area of decorating, consider staging. It will cost you $3,700-$5,000 however if your house is cluttered and you don’t have nice furniture, they can rent you some furniture and just make it all look nice and more appealing for the right type of buyer.
Appealing to the Senses
Now, this is really important in the process of selling a house. I have already discussed how to make a home appealing to the eyes, and that’s really one of the major points in selling. Beautiful things are just easier to sell – that’s a fact of life.
But let’s not neglect the power of the sense of smell. Yeah, nice smelling places evoke a sense of belonging. You’d want to stay forever in a place that smells good, don’t you?
So put air fresheners around the house for a nice ambiance of cleanliness and freshness. And if you’re serving food, brew some coffee – umhhhh… you know how that smells like. Your prospective buyers will immediately imagine themselves waking up to coffee in the house that you’re selling. Another trick is to bake some fresh cookies a few hours before the buyers come, but don’t burn them!
Home for Sale – Pricing It…
As a general rule, you should sell a property at a higher price than what you bought it for. Yeah, that’s quite obvious. In flipping a house, your goal would be to make a quick sale to get a decent profit.
Remember, delaying sale could mean paying for interest on loans, mortgages and real property taxes. So sometimes, you should be willing to lower your price just so you can make a quick sale. Being aware of the current home prices will give you a realistic approach to pricing and bargaining with prospective buyers.
Really, How Risky is Flipping a House?
Truth be told, you can lose hundreds and even thousands of dollars if you engage in house flipping without knowing anything about it. That’s why you should learn everything about it first and start with a small investment on your first few projects.
If you decide to loan some money for a house flipping project, make sure that you pay off the loan right after making a sale. Don’t wait for the interests to pile up as all your profits will only end up paying for your loan.
House Flipping as a Regular Job
Well, I can promise you one thing – you can really make a lot of money by flipping a house. And once you get the hang of it, you will actually enjoy the repairing and renovating part (including the mess!).
House flipping has become a regular gig for me. I just love it! I don’t mind living in a half unfinished house either.
So, this is how I do it – I buy a house, work on it, give it some love, sell it, and take a vacation.
Yeah, I definitely love it! And I’m sure you’ll love it too!