If you think flipping houses is easy money, you better reconsider. There is a lot of work required on the backend before a single property gets sold. In addition, considering the global economic impact of the pandemic, real estate properties have been majorly affected. In a report released by ATTOM data (2021), the first quarter of 2021 had been the lowest level of flipping houses since 2000. There has been a significant price drop in flipped homes. Developers and individuals buying and selling houses have to endure the smallest profit margin in a decade. ATTOM’s report pointed out that only 1 out of 37 houses gets sold. It also takes about an average of 5 months or more to get a house sold. However, cash transactions showed positive traction on flipped homes.
Despite the challenges of flipping houses, one can still make some profit out of the transaction if the process is done right. Whether you are planning to purchase a foreclosed property, an old house in need of fixing, to be sold later on, it is highly recommended to carefully evaluate your options. Assess your financial standing and check your knowledge about the market. Several things have to be considered and mistakes to be avoided to protect yourself and your money from getting burned.
Think about your budget. Flipping a house requires a couple of bucks to buy an old property and upgrade its look to attract prospective buyers. Think about how much are you willing to spare from your savings. Remember that flipping houses come with a risk, you may or may not make a profit out of this. As this is considered as an investment, spend only what you are willing to lose if things do not go your way. Do not spend your life savings or your emergency funds on buying and selling a house. The return on investments is not 100% guaranteed to be positive. You have to make sure that you have at least six months equivalent for your emergency fund too. If you are just starting in the field, it is best to try with one property for now. Do not bite more than you can chew. You will gain knowledge and industry experience as your property gets sold one at a time. If you are having difficulty raising the necessary capital to make your first purchase, look into the possibility of liquidating your other assets or checking with the bank for loans with low-interest rates. According to Investopedia, you will save some money from interest fees if you pay in by cash. But most property still comes with a holding fee to make sure that nobody makes other reservations apart from you.
When it comes to your budget, you have to assess properly not only the upfront payment for the house purchase but also the amount of time you will be spending on doing the repairs or managing individuals doing it. Apart from the time to be spent, you should properly evaluate what kind of repairs the property required? Will it require some quick, minor repairs or will it need a major overhaul? Will you be just repainting the whole house or are there things which need to be replaced?
Another thing to consider apart from the budget is the location of the property that you are about to purchase. You have to keep up with the industry trend and market news because the location is a critical factor in whether or not you can sell your property and whether you can sell it fast. Watch the market trend, as investors would say buy low and sell high. Check the neighborhood of the property you are eyeing. The ideal property you should be looking at is either with an established neighborhood or an area with plenty of developments around. It is important to carefully monitor the market, once you see an uptick in the trend, assess and decide whether it is time to sell the property.
Third, you have to make sure that you have a great credit standing otherwise house flipping could be a real challenge. A good credit standing should be at least 720 and above. Why is this important? You may be at risk of paying off high interest rates and high fees with poor credit standing. Before embarking on your house flipping journey, work your way first in improving your credit score.
Work on expanding your network. This should be done both online and offline. If you are flipping houses, you have to get the word out that you have a house waiting for a new owner. You have to be visible across different platforms. The more visible you are, the higher is the chance that your next buyer sees your advertisement. You can do this online through social media platforms such as Facebook, Instagram, or Twitter. You can also build your website if you are flipping houses for the long term and not just a one-time off. In a report released by the 2020 National Association of REALTORS Profile of Home Buyers and Sellers, more than 50% have found their next home through the internet and only 7% of home purchases were generated by signages on the yard. There are also community groups and real estate websites that are specifically designed for people buying and selling houses. According to Investopedia, the top seven websites you can check out are Zillow, Realtor.com, Trulia, Foreclosure.com, Apartments.com, FSBO.com, and Homes for Heroes.
Expanding your network should not be limited to prospective buyers only but also contractors. It is important to develop a strong, healthy, and professional relationship with your contractors because these people will give you an estimate of how much you should spend on repairs. Your contractors may also open the doors for you towards your potential buyer so the connection is very important. If you are going to work with contractors, provide them with exact directions on the look and feel that you want to achieve for the property. This will avoid rework and unnecessary fixes. Be open with them when it comes to your budget so they can make the right recommendation. When it comes to renovation and fixes, the common areas which need work are the light fixtures, floorings, main gates, and windows.
In terms of making a profit from your property after renovation is done, Smallbusiness.com mentioned that your asking price for your renovated property (total amount paid upfront plus renovation cost) should be at least 20% less than the houses around the neighborhood.
Consider if you are going to use a real estate representative to help you in selling the house. Real estate agents have the knowledge and experience of selling houses. These agents will take care of everything from the documents required, to ocular inspections, house tours, and other things needed to get things done. However, getting some professional help means that you have to pay them a commission fee or professional fee.
Rushing to get the house sold when the property itself is not ready. Do not put the property out in the market if it is not ready for moving in yet. When there are still a lot of renovations going on and the property is already posted as up for sale, ready to move in, you will have problems dealing with your prospective buyers. Potential buyers will lose interest in a cluttered property. Take time to clean up the house and make sure that decors and furniture are clean and fixed.
Diving into house flipping without careful planning, or knowledge is a recipe for failure. Just like any business or investment, you have to know what you are getting yourself into. If you are buying and selling a house just because your friends or neighbor is doing it, you should think again. Flipping houses demand a lot of your time as well as your financial resources. You have to be ready for both.
Too eager to make a profit without reading the market trend is another mistake novice home flippers are doing. To make some money from your investment, you should be patient and be able to read the market trend. Selling in too early could mean that you’d missed out on a much higher gain. Selling too late could also mean that you missed out on your opportunity to make some profit. Remember that the main idea behind house flipping is to gain a profit margin from selling an investment. Right timing is a key and speed is vital. The sooner you can sell the property, the lower the risk that your capital might not be returned. As each day passes with the property remaining to be unsold, you are absorbing the cost. Since the property is still under your name, you are paying for the property tasks, utility bills, insurance, and mortgage.
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