For some people, flipping houses is a lucrative and satisfying career option which is more stable and rewarding than the name makes out.
If you’re interested in snapping up affordable property, renovating it and re-selling it in a short timeframe, but you’ve never looked into flipping houses before, you are probably stumped over where to start. Here are just a few tips to send you on your way while avoiding common mistakes of novice property flippers.
Research the different types of loan available to you
Unless you’ve already got enough cash to buy your first flip-worthy property outright, you’ll need a loan to take this first step.
A traditional mortgage is not the best option in this case, because of how long it takes to get approved and the rigorous eligibility requirements involved.
Instead, lots of people who flip houses turn to hard money loans, like those available through HardMoneyHome. This type of loan is perfect for short term purposes, and lets borrowers find lenders who are specifically interested in this segment of the market.
Lenders will usually want to know the potential resale value of the property in question, as this will act as collateral, as well as proving to them that you can actually make money on the deal you are planning. Interest rates will be higher and repayment schedules tighter than with a standard home loan, but if handled well a hard money loan could work in your favor.
Calculate repair costs against resale value
Talking of the value a home flipper should look to get out of a property, there’s a pretty hard and fast rule to follow to avoid being stung.
Most experts in this field agree that your offer on a property should be equivalent to 70% of its anticipated value following your renovations, less the amount you expect to spend to get it into a salable condition.
In the case of a home worth $100,000 which requires $15,000 spent on renovations, that calculation would work out to $55,000.
Obviously, the market in your specific area may convince you that it is worth pushing the boat out, but it’s not sensible to take risks or stray outside of tried and tested tactics when you are flipping your first home; leave that until you are more experienced.
Remember other expenses
Another common conundrum that first time house flippers find themselves in is forgetting that they need to factor in the additional costs of buying, renovating and selling a home on top of those of the loan and the repair work.
There will likely be property taxes to pay, as well as any utilities that you use while it is in your possession. Likewise, there will be commissions for any real estate agents that you need to involve to sell the house once it is ready for market.
Focus on areas that matter
The last but arguably most important tip for flipping houses is that there’s no point over-spending on renovations that prospective buyers won’t value.
Must-haves like a new kitchen and a fresh bathroom suite are worth investing in. But there’s no point splashing out on features that appeal to your particular tastes and sensibilities if they are likely to put off the average house hunter.
This is also a good way of keeping your budget in check. Trim the fat and don’t spend a penny more than you need to in order to restore the property to a livable, saleable state. And most importantly, until you have successfully flipped a few houses, don’t quit the day job.