6 Tips For Flipping A House

flip ugly houseThe first two tips for flipping a house are not about what to fix or change. They’re about time and money. Specifically, they are about how time costs money, and about how to determine how much to pay for your “flipper” in the first place. Read these first two carefully then, to make sure that you do this right.

1. Know Your Numbers

How much will the house sell for when it is ready? A clear idea of the ARV (after repair value) is necessary to safely make an offer on a property. Don’t just guess that you’ll sell the home for $20,000 more than what you put into it. You don’t decide what a home is worth – the market does, so get advice if necessary. Then subtract from the ARV all possible costs you will have, including price, buying costs, repair costs, holding costs, and the costs of selling. Now subtract the profit you want, and you have the highest price you should pay. Start with an offer lower than this, of course.

2. Schedule Properly

More than a few house-flipping projects have gone wrong due to falling behind schedule. For example, you think you can get the plumber in and out of the house in the first week, but it takes a month, so you can’t close the walls up, and everything else gets behind schedule. Meanwhile your spending $2,000 per month on holding costs like loan payments, utilities, property taxes and insurance. So check before you finalize the offer, to see how long things like windows, plumbing and dry-walling will take. Also, make completion dates a part of any contracts you sign with contractors.

3. First Things First

On one of those “flip a house” programs on television the other night, a young couple was running $10,000 over budget on their first fixer-upper investment (and six weeks behind schedule). They ran out of money and put the house on the market with a crappy-looking yard and stains visible on the front wall. Of course buyers would see these things first, making a bad impression. Avoid this by starting with changes that are most important. Then if you run out of money or time, you’ve already done the things that will make the home sell.

4. Figure The ROI Of Improvements

The ROI or return-on-investment for each possible improvement should determine what you do to the home. You’ll be guessing at times, but the principle is that you do only those things which increase the value of the home substantially more than what they cost. Such high-ROI improvements vary by area and by type of home, but they typically include painting, carpeting, landscaping, and finishing unfinished space. With a small house, you might get new flowers and bushes, fresh paint, and all new carpeting for less than $7,000, and possibly raise the market value of the home by $14,000.

5. Know Your Buyers

A single level ranch in a neighborhood full of retired couples, won’t sell well to young “yuppies.” Know what kinds of buyers are likely to want the home (and neighborhood) before you start. Then, after improving it with those buyers in mind, market it appropriately. You or your agent should identify and advertise the benefits that matter to your buyers, whether this includes “close to stores” or “country living.”

6. Price It Right

Selling fast means you save those holding costs. You may also have other projects waiting for that money. To sell fast, price it slightly below market value – and let buyers know it’s a deal. It may seem that if you sell for $3,000 under market, you’re losing $3,000, but you are possibly saving a couple thousand in the holding costs you’ll pay if it takes an extra six weeks to sell at a higher price. Also, if you are a serious investor, flipping a house fast means getting the money into the next project fast. Buy right, and use the other tips here, and there should be plenty of profit left in any case.

16 thoughts on “6 Tips For Flipping A House”

  1. The number one tip should be to have the home inspected and to discuss with the home inspector what the budget for repairs is vs what the repairs are going to cost.

    Home buyers underestimate what will take to cure problems with distressed homes. They usually do not take into account all the other costs associated with buying and selling homes.

    Many will get stuck either losing money, not making any money or having to live in the house because there are no buyers who will make all the work profitable Home Inspector

  2. Property is commonly thought of as a thing which belongs to someone and over which a person has total control. But, legally, it is more properly defined as a collection of legal rights over a thing.

  3. Back in the day when I was flipping properties at a whopping part time rate of about one/year, the two most important things were:

    1) Pre purchase inspection (used as negotiation leverage if possible)

    2) The buy price. Everything keyed off th price you bought it for. If you over pay, you’re hosed. If you vastly under pay, there’s almost no way you can go wrong.

    Rob for Atlanta Real Estate

  4. Very good info! Nowadays, in these hard times for the economy and in with all the changes, conditions and new information our prospects or clients have in front, realtors became a special key for making decisions. Our job now is not just about “sell”; is also about giving people the best tools and resources in a very easy way to understand, so we can get their confidence, loyalty and referrals, specially because we have a Real Estate market that is not the “healthy” market it was just some years ago.

  5. Great article. I agree with Atlanta Real Estate’s comment. A pre-purchase inspection can be good leverage during negotiations. It will also uncover any hidden expenses that may not have been noticed otherwise. And purchasing the property at the right price is key. If you spend too much, adding in the renovations needed can leave very little, if any, money for profit.

    1. Yeah, home inspection is always necessary when it comes to home buying especially, if you want to flipped it. You always have to make sure that you get the house in the most affordable deal you can get from it and sometimes, the price of the property can be lowered big time, if there is a huge defect found in the house.

      Gilbert Homes for Sale

  6. I agree that you need to come up with a realistic resell value before purchasing a property for flipping. I would even go as far as taking 10% off my estimated resell value to create a “margin of safety” and if the deal is stil very profitable, then I would be comfortable purchasing the property. Great article, cheers.

    Property Investing Tips

  7. Yes, resale value is also an important factor to consider when you buy a property,then flip it. Even if you did well with the redesign and improvement of the house, but the resale value is not good enough, your efforts and your capital may just be put to waste.

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