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Are you ready to start flipping houses for yourself?
You’ve seen the TV shows, you’ve heard the radio ads, and you’ve checked out the websites. Flipping houses for a profit seems like it might be a serious money-maker, but how can you be sure that you aren’t getting in over your head? It can be a risky investment that could lead to a larger payoff, but on the other side of the coin, you can also be in danger of taking a huge financial loss.
What you need is a guide for how to start flipping a house; learn the beginner’s main tactics and things to keep an eye on when you’re thinking about getting into the flipping game.
The house may look great, and the price may seem reasonable, but when you start to add up the cost of repairs and refurbishment, the total cost can inflate very quickly. The goal is to buy low and sell high without spending a fortune on repairs and improvements.
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Walk the property, get it inspected by someone you trust, and do an exhaustive comparison on repairs to see how much you have to sink into the place. Look at what similar homes are selling for in the neighborhood already. Consider the 70% rule when making your evaluation (don’t spend more than 70% of the value after repairs are made, minus the repairs themselves). This gives you an idea of what the home is expected to value after repairs are done.
When flipping a house, scheduling is everything, because the longer it takes you to sell the home, the more money you’re keeping tied up in the investment. Renovating homes can be very expensive, and if you plan on making this a business, then you need to have consistent cash flow.
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Unless you’re doing the work yourself, you also need to schedule people to work on the home for you. Then you have to schedule inspections and get all of the details finalized for getting the house back on the market. In short, flipping homes can be very time-consuming, especially if you’re trying to tackle the repairs yourself (lost evenings and weekends!). Therefore, consider the time investment alongside the financial one, because if you don’t have the time to do this, then you shouldn’t be.
Despite your own knowledge, financial stability, research capability, and repair-know-how it is still worthwhile to talk to professionals. Discuss things with a financial advisor to make sure that you have the necessary capital to keep things afloat if the house doesn’t sell right away. Talk to an inspector about common repair needs to get things up to code and what the associated costs can be.
Establish your financing before you need to purchase a home so your plans don’t fall through. Talk to contractors and have them ready to jump into a project with you after you talk through their process and costs. Select a proven realtor who you know has experience in flipping homes. The more work you do upfront, the less you’ll have to worry about when it comes time to get things done.
After you’ve completed your neighborhood research, talked to the pros who will help make this a successful venture, and once you have an offer accepted, it’s time to buy the investment property and get to work. If you’re capable, stick to your schedule and work as many hours as you can spare on the repairs. If you’re hiring contractors, immediately get them signed to come in and begin work. The name of the game at this stage is efficiency!
In comparison to all of the advance work and the physical labor you have already completed, this is the easy part. Work with the expert realtor you hired to get your investment home on the market quickly. They will help you evaluate a realistic listing price (and hopefully you’ve adhered to the 70% rule so you can make a decent profit). Selecting that listing price can really make all the difference and it’s ultimately up to you to define the final number. You can calculate all the numbers of the deal using an online hard money calculator
Determining the new value essentially boils down to two options: the comp method and the income capitalization method. One is straightforward and looks at comparables (i.e. comps) in the neighborhood, while the other uses ratios. Talk it over with your realtor in advance, and then good luck!
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