There are lots of cable television shows these days that feature “flipping" houses for profit that make it seem like just about everybody's doing it. For the uninitiated, flipping a house means buying a house at one price, then improving it in a short amount of time to sell it again quickly for a substantial profit. Most people who flip there first house have dreams of making an enormous profit very easily, but it's not that simple. Complications almost always come up, and you have to be very aware of the area, what the market will bear and which improvements are worth the investment to flip a house successfully.
You need to find a house that fits several criteria in order to make a healthy profit at flipping. Some of the things you need to take into consideration include:
Is the neighborhood a growing or improving one that buyers will be interested in?
Are the improvements or repairs needed ones that you can do within a reasonable budget?
Can you pay for the needed repairs/improvements and still net a good profit?
Is the area one that will appeal to a wide range of buyers?
Are there any problems that just aren't fixable (bad location, a foundation that is sinking and can't be shored, etc. )?
How many other houses are for sale in the immediate area (too many, and the market glut will drive the price of your house down no matter how nice it is)?
Locating a home that fits your budget and criteria means research, and lots of it. Many people who have flipped successfully say the best way is to simply drive around mid-range neighborhoods and look for the slightly run-down homes with solid bones that have been on the market a bit too long. The owners are usually anxious to sell, and the most buyers avoid fixer-uppers, so you can negotiate from a firm position. Also check out Sheriff's Sales, banks that handle foreclosures and online auctions.
Of course, even after you purchase the property you have plenty of work to do. Be sure you set up a budget in advance and resolve to stick to it when doing repairs and remodeling. Remember, the goal isn't to turn this into your dream home, but a solid, saleable property that will net the highest possible profit for you. Have a complete home inspection and get bids for any repairs that you can't handle yourself, such as upgrading wiring or dealing with dry rot. Next, determine what jobs you can do yourself or with the help of friends to save money. Finally, shop around for the best price on materials and haggle whenever you order more than one thing (say, tile and cabinets) from one supplier.
One of the most common mistakes a novice at house flipping makes is choosing top of the line everything, thinking that this is what will sell the house. Quality is always a good selling point, but only within reason. There is a bell curve to this - after a certain point, you start to lose money if you've purchased luxurious upgrades that aren't necessary. For instance, if you're remodeling a house in a mid-salary neighborhood with primarily starter homes for young families, buying granite countertops and solid cherry bathroom cabinets will mean you will end up pricing the real estate too high for the market to bear in order to get your investment back. Instead, consider attractive, durable laminate countertops and oak or pine cabinets.
On the other hand, if the home you are flipping is in an exclusive neighborhood where most other homes have the best of everything, those granite countertops may be a must-have. How do you know what is best for the particular home you're flipping? Go to several open houses in the area and see what the standard is, then talk to realtors about what they feel are the most sought-after features for buyers in the price range you are anticipating selling the house for. Generally, you don't want to be the most expensive house in the neighborhood, but you should shoot for the upper end of the scale.
Being aware of what buyers want also means that you should remodel with in eye toward appealing to the greatest possible number of buyers. This means keeping things practical and neutral, not tailoring the house to your own personal tastes. You may love rich, bold colors in every room, but most home buyers prefer to see walls that are in a warm neutral shade such as eggshell or taupe. The same goes for fixtures - if you install fixtures that include color inlays or have elaborate detailing that either is extremely elegant or (at the other end of the spectrum) ultra-casual, you may put some potential buyers off. Sticking with what's simple and classic is best and will multiply your chances of a quick sale.
If you plan to continue flipping houses, but sure to establish a rapport with your contractors, suppliers and the inspectors you deal with. You'll need their help and goodwill in the future, and it's always a safe bet they'll return your calls more quickly if they like and respect you rather than if you are yelling and demanding things. In fact, if you find a good contractor or supplier, it can often pay for you to establish an informal agreement with them that you will use them for any future flips in exchange for some type of consideration on their part - after all, they want that steady work or those steady orders from you.
Finally, although some flippers will try to sell a house on their own when it is finished, a realtor can be your best friend. Realtors are professionals at getting the word out, generating interest in an open house, and talking up your property to other realtors. Again, if you decide that you want to flip other properties in the future, let the realtor know this. He or she may very well lower his or her commission in exchange for the promise of future listings from you.
Good luck and happy flipping!
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