The concept of house flipping is fairly simple; buy an outdated house at a low cost, give it a makeover, and sell it at a higher price. Sounds easy, right? But there are actually a lot of factors that one must consider before starting with flipping houses in order to be successful.
Although the market for house flipping has been growing in recent years, there are still a number of projects that fail to yield income. More often than not, this is due to the underestimation of the cost of the project as well as the time it needs to be accomplished, and the overestimation of the capabilities of the project manager. Just like in any industry, the more you know, the better which is why we’ve come up with a basic guideline to flipping houses.
The first thing you need to consider is your finances. Understand home finances and decide how you’re going to pay for the house. Will you be paying for the house in cash or will you be getting a loan to finance this house? These are the basic questions you must answer first before starting a project.
Finding the Right Property
Once you’ve decided how you’re going to finance the project, start planning by conducting research. Research on the current state of the real estate market and the current trends in real estate. This is also the part where you begin to identify the type of property that you are looking for in order to serve the correct market, all while sticking to the budget you have set out.
The 70% Rule
This is the general rule in house flipping. The 70% rule indicates how much a buyer is willing to spend on a project. This means that a buyer should never buy a property for more than 70% of the after repair value less the cost of repairs.
So for example, the estimated after repair value of a property is $300,000 and the cost of repairs is $50,000 then the 70% rule states that the investor should spend a maximum of $160,000 to buy the property.
$300,000 x 0.70 = $210,000 – $50,000 = $160,000
Set a Timeline
Once you have mapped out your budget, start with planning the actual timeline for the renovations needed in the property. Consider all renovations and try to plan the best way to attack and complete the renovations so that you may dispose of the property as soon as possible.
Build a Great Team
In house flipping, time is of the essence. The longer one holds onto the property, the higher the costs and risk there is which is why one should find a great team to work and collaborate with flipping houses.
The main component of this is to find contractors you actually trust and understands your vision as well as your needs. Of course, you can handle the repairs on your own, but as mentioned earlier, one of the rookie mistakes people make is overestimating their own capabilities and knowledge in flipping houses. On top of that, although you may save money by not hiring contractors, the time spent on flipping the house will only cost you the same. Be sure to check your contractors’ licenses and remind them of your budget and timeline.
Sell the property
The best tip for selling the property is to hire a real estate agent. Real estate agents are more knowledgeable of the current trends in the market and are well connected to potential buyers as well. On top of all this, they can post the listing in the Multiple Listing Service (MLS) database which makes it more probable for you to sell the house faster and at a better price.
On the other hand, you can sell the house yourself. This will save you money but be aware of the risk of not being able to sell the property as quickly as a real estate agent would. This will all depend on your priority.