It’s common knowledge that investing in real estate is a great way to be successful and build lasting wealth. Flipping houses has become a very popular branch of the real estate industry especially for those just starting to get their feet wet. However, for many, this method of attaining riches can be quite intimidating for those who are new to the process. Luckily there is a time-tested procedure that has proven successful in delivering the desired results. It’s important to understand just how much leg work is involved in the process. A successful flip will require due diligence and a very thorough analysis of countless factors. Most experts agree that minimizing the risk of investment losses is the most important and the best way to do this is to constantly be educating yourself on all topics of concern. You should be well versed in market values, market trends, repair costs, different types of property investments and loans, capital gains tax, and the months of supply for the area in which you wish to flip your property.
Location, Location, Location
First, you want to choose your desired market. There are many factors to consider when choosing the right neighborhood to work in. Is the area an up-and-coming part of the community? What schools are zoned for the neighborhood and are they highly regarded? Is it in a flood zone or susceptible to any other risks caused by natural disasters? Lastly, but most importantly, is there a demand? There must be someone willing to pay for all the work you plan on doing, otherwise what is your purpose in flipping the house? There are many tools out there to help you with this process. Research your local MLS (multiple listing service) and figure out how much homes are selling for in that area and at what rate. It’s important to know whether you’re in a buyer’s market or seller’s market. Networking is also a great way to ease into things by teaming up with real estate agents and other brokers creating an open forum to share information and property listings.
Raising Your Capital
Next, you want to get your financing in order. Where is your capital coming from? Most beginner home-flippers will need some sort of financial help from outside investors. There are several different types of ways to gain capital and you should consider the pros and cons of each of them. There’s private money lenders, usually an individual with access to enough cash needed for the investment. Hard money lenders are more organized institutions that usually have a license to lend money out. There’s also real estate crowd-funding loans where you can collect small amounts of money from a large pool of investors. Each option will come with its own interest rate and will vary on how quickly the deal will close. This is where all that due diligence will come into play and hopefully pay off.
The Right House
After you’ve secured your finances and found the right market, it’s time to choose the perfect property to flip. Look for deals that meet your criteria and offer attractive profit margins. Remember, the whole point of flipping is to sell the house for more than what you purchased it for plus all the extra costs and fees of the renovations process. Calculating the ARV (after repair value) will help you determine if the property is worth the flip. Most people don’t go through all the trouble of flipping housing only to make $5,000 so again I stress the importance of doing the research to increase the likelihood of success.
Make Smart Changes
Then comes the fun part: renovations. A good rule of thumb here is to make it make sense. Don’t make upgrades just for the sake of it. Think about how it will increase the value of the property while maintaining demand and stay in line with your budget. No need to put a hot tub in the backyard when a few nice plants will do.
And finally, the flip. There are two major secrets to flipping houses for a profit: 1.) selling quickly and 2.) creating demand. Creating demand all comes down to pricing the house correctly. You want to make sure it’s priced competitively against other properties on the market while still within your desired profit margin. If a house is viewed as overpriced, it may sit on the market for some time costing an obscene amount of money in holding costs, hence the importance of selling quickly. Another reason selling quickly is vital to success is the sometimes unpredictability of the housing market. Again, this is where you can decrease your risk of loss by taking the proper precautions and developing a sound real estate strategy.