The job of an house flipper – House flipping – is really fun and easy. You just have to buy a house, do some fixes and put it back to sell for profit. It’s possible to think the only thing you need for a house flipping is money, right? Nah, there’s much more to it.
House flipping as a real estate’s investment, demands a high level of carefulness, and, every little mistakes or oversight can become a great risk. Here are what you need to become an house flipper and common mistakes every house flipper (whether new or old) should always avoid
Steps to Become a House Flipper
1. Get your real estate license
When beginning a flipping career, it’s a good idea to be the most rather than the least prepared. You don’t need your real estate license to become a house flipper but it’s a good idea to get your real estate license because it will open up more opportunities for you throughout the process.
2. Establish relationships with contractors, home inspectors, accountants, and attorneys.
Sticking to a timeline is very important for house flippers. The faster you can fix time-consuming issues on your property, the better. Having a trusted contractor, home inspector, accountant, or attorney on speed dial can save you time and headaches.
Before you begin the purchasing process, build relationships with all the experts that you anticipate needing once the sale closes. Let them know your plans and ask them for advice. Their advice might even shape the kind of properties you hunt for and help you weed out potential disasters.
3. Scout out the best locations for your budget.
Location matters when it comes to house flipping. Take some time to get to know all the different neighborhoods in your city. What neighborhoods attract families and which ones attract retirees or young professionals?
Understanding the neighborhoods in your community will give you an idea of who your potential customer will be. If you purchase a property in a quiet suburb with a reputation for excellent public schools, your potential buyers will most likely be a young family.
Understanding who your buyer is will enable you to make more informed renovation and design choices.
Once you become familiar with your local neighborhoods, research which ones are up-and-coming or in high-demand. Purchasing a property in a high-demand neighborhood will ensure that you make a sale quickly and at asking price.
4. Purchase a property
If you already have your real estate license when you get to this stage, and have found good deals (houses) at good locations, Here are some considerations when purchasing the property:
- Will you get financing for this property or pay the total price up front? If you’re taking out a mortgage on the home, what monthly payments can you reasonably afford after you factor in the cash costs you’ll need to renovate?
- Will you purchase this property with the help of real estate investors or do it on your own?
- What are the property value trends in the areas you’re shopping?
5. Renovate the house
Next up, time to renovate! When you’re renovating, it’s important to stay on budget so you’ll end up making money on your house when you sell it. Here are some tips to help you keep costs down in this stage:
- Create a budget
- Use a cash back credit card, or a credit card with great rewards points on your business purchases
- Reuse materials or buy used, salvaged materials from other house flippers
- Stick to classic designs that will resell well
- Take your time when accepting bids from contractors to find the right one
- Be specific with your initial budget so you’ll have an accurate estimate from the start
- Decide where you’ll splurge and where you’ll stick with the minimum
6. Sell and earn a commission
You’ll always have to pay the agent who shows up with a buyer a 2% to 3% commission. But a real estate license for property flippers means you can represent your own property; so you can either save the money or pay yourself a listing commission.
Some brokers—not all—will let their agents pay themselves or eliminate the listing commission on sales of agent-owner properties.
In May 2018, the median price of a home was $252,800, according to the National Association of Realtors; so if you act as your own listing agent, you’ll save $5,056 to $7,584, which could be the difference between making a profit, breaking even, or losing money on a flip.
5 Common Mistakes House Flippers Should Avoid
1. Not having the finances
Even though money is not the only thing you need to flip a house, but, before you flip a house, you have to buy it.
Depending on whether you’re paying all-cash or getting a mortgage loan (and whether you already own a primary residence or not), you will have to secure a down payment for the home, plan on paying mortgage interest for the months that you carry the mortgage, pay for utilities, and pay for the expenses of actually fixing up the home.
2. Buying the wrong property
Paying too much for a home is one of the worst things you can do as a house flipper. Buying a bad house can make you spend too much on renovation which is also bad for you.
So it might help to secure some real estate expertise from a local professional who can give you a good idea of what fair-market prices look like and help you ascertain if your offer looks good or not.
3. Not Knowing What Local Home Buyers Want
You can spend thousands renovating a home in a style that you find to be ideal only to discover that it’s not what buyers like.
As long as you are not renovating the house for yourself, then you know what types of home styles have appeal, the finishes that are most popular and which upgrades will attract buyers.
4. Ignoring the outside
Even when the inside of the house looks amazing, understand that it doesn’t stop there. You should pay attention to the outside too. Check the landscape, be sure that the neighborhood is not flooding, and pay attention to the entire vicinity.
5. Not Enlisting the Help of a Real Estate Agent
Flippers need to understand that real estate agents play a very vital role in the business, as they provide so many valuable services, some of which are free.
They’ll shoulder a lot of the responsibilities and can provide expert advice on whether a home is a good investment. After the sell is complete, a real estate agent can provide insight into what local home buyers are looking for and pass along their industry contacts.
When it comes time to sell, your agent can pull the comparable and help you determine the best list price.