Flipping houses looks pretty glamorous on TV, but there’s a lot going on behind the scenes the viewer isn’t privy to. While buying a fixer-upper, renovating the property, and selling it at a higher price might seem like lucrative way to make money, flipping houses is more than a fun DIY project. If you’re interested in getting involved in this real estate domain, read through this questionnaire before diving in.
Do you have the funds?
The number-one obstacle faced by short-term real estate investors? Funding. Beyond the price of the property, you’ll need to pay for repairs, contractor fees, listing and broker fees, holding costs until you sell the home, and taxes thereafter. The best way to purchase a property is with cash in full; it’s quick, clean, and likely to get you a bargain. Unfortunately, not many people have hundreds of thousands of dollars on standby. Many flippers will resort to financing their investment through a variety of means, and the best option for you could depend on your location. For example, desert properties tend to be a bit cheaper, in which case Arizona hard money lenders could help you benefit from a fast flip. Investments in more competitive areas, such as Southern California real estate, should consider permanent bank loans for a better buy-and-hold strategy. No matter how you choose to finance, if you don’t have the funds, your flip could become a flop and leave you in debt.
Do you have the time?
TV shows make the process of scouring the best neighborhoods for the ideal property, completing all the necessary renovations, placing it back on the market, and finding a full-ask buyer seem quick and easy in a short 60-minute episode. In reality, the fix and flip business is incredibly time-consuming. The most successful flippers are full-time real estate investors. If you’re looking to flip a home as a side project, be aware of the commitment it requires. Buying from a wholesaler can shed off the months it might take to find a good deal from a realtor, auction, or self-research. Have an organized crew on hand to complete the renovations as quickly as possible, because each day the house sits is another day you’re losing money.
Do you have the resources?
Well-connected people are well suited to the fix and flip business. If you, or someone close to you, has their real estate license, you can save thousands of dollars in listing fees. Contractors, plumbers, electricians, painters, and designers are all other good people to have in your back pocket. You’ll likely need an accountant to help you navigate the complex real estate tax laws. Network extensively, and if you know a successful house flipper, ask him or her to be your mentor. They’ll be your best resource for proactively confronting unseen problems before they arise.
Do you have the knowledge?
Do you know how to install drywall or carpeting? A handyman or those with a knack for home improvement make great candidates for the fix and flip business. However, be mindful of how much money you’re saving through DIY projects versus how much time you’re wasting by not hiring a team. If you have personal experience with buying or selling homes, your negotiation skills could help you get the best price on a property. Do thorough research on the neighborhoods you’re shopping in and learn how to spot a good deal. Keep in mind that homes in good neighborhoods sell more quickly, and employment growth is a good indicator of a recession rebound. You’ll need to know the ins and outs to the finest detail, all the way down to the cost of re-flooring a 1,000 sq. ft. space and which renovations will get you the greatest return. Above all, you need to be equipped to manage time and delegate tasks in order to see a worth-while return on your investment.
Flipping houses can be fun, and lead to enormous profits. However, it’s risky, backbreaking work and not everybody is cut out for the business. Be sure to ask yourself all the right questions before entering into the world of real estate investment.