How to Buy a Flip
One of the hottest trends in real estate investing is house
flipping. House flipping is simply buying a house at a lower than
market value price, sometimes renovating it and then quickly reselling at a
higher price for a decent profit. It is especially attractive to amateur
investors. While house flipping can bring financial rewards, it is also
high-risk. Thus, every investor should take a few things into consideration
before taking the plunge.
Map out a plan
A good plan is essential. House flipping is just like any other business and
requires a solid business plan. You need to know what you are getting yourself
into. If this is an investment strategy that you want to pursue, you need to
take a serious look at the facts. Investors who go into house flipping
unprepared are probably going to lose money.
Know your potential market area
When you are flipping houses, you often need to make quick decisions. You need
to know your market. You need to familiarize yourself with the neighborhood.
You need to have basic knowledge about market values of similar properties in
that neighborhood. Find out what kind of houses sell quickly in that area, what
features are important to most buyers, how long do houses take to sell. Know as
much as possible about the market you have chosen, the better decisions you can
arrive at when it is time to buy.
Shop around for the right property
Once you have chosen your target area, you need to take a close look at the
available houses. Make sure you look at the location of the house. Will you be
able to sell the house once you have renovated? Find out the condition of the
house. How much work and what kind of work need to be done? Find a house that
will work for you financially and from a management point of view.
Set a budget for the amount of the home purchase
Once you know your market, you need to set a budget for buying a house. When you
find a house that meets your criteria, make a realistic offer. Factor in
mortgage fees, attorney fees, closing fees, titles, consequential taxes on the
offer. Do a bit of haggling. Do not despair if the negotiation bogs down. There
Have a thorough home inspection
Once you have found your property, do several walk-through with a home inspector
or handyman especially if you are new to the business. An inspection is a must.
It will reveal any major electrical, plumbing, pest or structural problems.
Buying a property without inspection can spell the difference between profit
Stay focused on a house that needs only cosmetic work
This is especially true when you are a novice flipper. Look for a house that
just needs cleaning up, painting or new flooring. Curb appeal problems such as
a messy yard or unattractive landscaping can be fixed easily and inexpensively
while still increasing the value of the house. Avoid a house that needs
Set a limit for the flipping process
After several walk-throughs, you should be able to determine the repairs needed.
Make a list of the things that must be done such as painting; things that
should be done to get a reasonable selling price and things to be left alone.
Next obtain estimates. Finally, create a budget. Factor in not only renovation
costs but also closing costs, permits and licenses. Be sure to add a certain
percentage for cost overrun.
Determine which of the work you can do yourself and which to hire out
In a perfect flip set-up, you need to do as much of the work on the property
yourself because contractors eat profits. But not every one is a builder. Be
realistic about your skills. If you do not know or cannot do something, hire
somebody who does.
Work with a professional real estate agent
A good realtor can help you understand the current market condition in the
neighborhood where your flip is located. He/She can help you determine the
proper price for a maximum profit for your flip. He/She can also help you sell
the flip faster.
Know how much to sell your flip
When you sell, it is imperative to price your flip right. A property priced high
too high will scare potential buyers. You want to make a good profit but you
also want to sell quickly. Under-pricing slightly can be the bait you need to
Want to Learn more about Flipping Houses? Download the Home Flipping Guide