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With the housing market recovering after the big crash in 2008, house flipping is becoming an increasingly popular investment choice again. “Investors have not lost interest in purchasing and flipping homes. In fact, now that we are seeing home price appreciation they are more interested than ever,” said Sheldon Detrick, CEO of Prudential Detrick/Alliance Realty.
While house-flipping might seem like a daunting prospect for women, many are making it happen. Kymberly Dryden, an experienced Southern California house flipper told girlsguidetorealestate.com that her family business is more successful than ever right now.
What is Going on With the Housing Market?
Buyers are motivated. DoHardMoney.com says that, although buyers in the high-price range are fewer today, those buyers will be more motivated to move more quickly on good deals. Lack of competing prices will make buyers want to close quickly. This will speed up flipping time.
Mortgage rates are going up, but they are expected to remain historically low. This is making mortgage loans easier to secure for most buyers. So, although there might be fewer buyers in the high-price range, there will be more buyers, overall, for all price ranges. And more buyers means your property will sell faster.
There are profits to be made. Daren Blomquist, vice president of RealtyTrac told USA Today, although there are fewer discounted properties available right now, where homes are available, substantial profits can still be made.
So, with house flipping becoming a more viable investment opportunity, here are some tips for protecting your investment:
#1) Know Your Real Estate Market
You should know what types of homes are selling in your area, and for what price they are selling. You need to be able to recognize a good deal when you see it. Know what buyers in your area are looking for. If single-family, mid-priced homes are selling, that is what you want to buy and sell.
“The ideal flip is also the ideal purchase,” says Brandon Turner, senior editor and community manager for BiggerPockets.com, a website for real estate investors, and a veteran flipper near Olympia, Washington. “You find what people are buying and look to create that.”
#2) Know Which Houses are Good Investments
Know what makes a good “fixer” and what doesn’t. Look for houses that need only cosmetic work. The worse it looks, the fewer buyers will want it, but you should see it as a great investment. However, you will want to avoid homes that need structural work. Plumbing problems, issues with the foundation–those will be costly and time-consuming to fix.
Stick to the 70% rule. Experienced flippers will tell you to only buy homes for which the After Repair Value (ARV) is no more than 70% of the estimated sales price. You’ll have to do a good amount of research to be able to estimate this accurately. Look at how much similar properties are being sold for. Zillow, Trulia, and Realtor.com can help you track home sales prices in your area.
#3) Don’t Get Emotional When Choosing a House
When you go to look at properties, remember that you are not looking for a house that you love; you are looking for a house that creates the best investment opportunity. Keep a level head so that you stay within budget and purchase at the right price from the start. If you find a house that you really like, but it is outside of your budget, you’re better off walking away from it. If you go for it and unexpected costs come up, you could easily end up taking a loss on the property.
#4) Don’t Trade Quality for Cost
Do what you have to do to keep costs down, but don’t compromise quality where it counts. For example, you’ll need to find an inexpensive contractor, but make sure to avoid hiring a mediocre contractor who will make mistake after mistake and cost you money in the long run.
#5) Always Get an Inspection
Before you buy the house, take the time to get the house inspected. This process will help you in several ways:
- It will help you determine if there are major problems with the house that could derail your construction efforts and destroy your profits.
- It will point out any needed work, which can help you begin to get organized before the deal is finalized.
- It will help you understand repair costs.
- If you are able to bring these problems to the seller’s attention in time, it might help you negotiate a discount that brings the property back under your maximum purchase price.
I have a friend who flips houses for a living and I give her a lot of credit because I don’t think it’s something I could do. She has a tremendous amount of vision and creativity and I think that’s why she does well and makes the right decisions.
This is something my family and I have thought about doing, but the housing market is still dismally poor here. I think the best we could hope for would be to buy houses, fix them up, and then rent them out. I just don’t know if I want the headache of being a landlord, though!
If I had the know-how and the means to do it, I would definitely do this! I wish I had the kind of skills to renovate a house. It seems like a very lucrative market.
I think my biggest fear of trying this would be not being able to sell the house and being out my investment. Renting is definitely not something I want to try either.
Buy low, sell high! I have a few friends doing this and they all agree on one thing – know what you are getting into and have a real plan before you jump in. If you don’t research you will get stuck with a lemon.
It is but you need to make sure you hire the right people to start with, there are many shoddy workers out there who promise one thing and deliver another. If you have someone who is trusted and has the know-how it can be great!
Not getting emotional about a house can be a big problem. If you see a house that you absolutely love, buy it for yourself if you can and find something else for your business venture.
I agree completely. Emotions can affect us in our purchasing decision and also in our renovation decision. Additionally, emotional attachment can lead us to create unrealistic expectations with selling value prolonging the flip time.
The only way that this would work where I live would be to fix the houses and rent them out until the market improves and I know I don’t want the headache of being a landlord.
The best way to do this in my opinion is to always know where the market is for the area the house is in. Some people watch the nationwide trends, but why be interested in how Vermont is doing if you’re flipping houses in Seattle?
That’s true, but part of the research should also include materials. This cost can escalate quickly if you’re not careful. Having a business account at a place like Home Depot can save people a lot of money when they have to buy in bulk a lot.
Those two qualities, vision and creativity, are very important here I think. I imagine a person would have to be able to see the final result of what a sellable house looks like and the creativity to get it to that point.
Something else to keep in mind is the inner workings of a house. Before you start looking at the appearance too closely, find out the working condition of the electrical and plumbing of the house. I’ve been told that these are two of the most expensive, and needed, parts of a house.