Things to Know Before Flipping a House
Flipping houses can be a profitable venture, but it isn’t as simple as the home renovations shows on television make it appear. There’s a lot that goes into the planning and execution of flipping homes, and a lack of understanding of some of the basics can cost you the profit you were hoping to make on a flip.
Before you get started, here are some critical things you should understand about flipping houses.
Good Deals Start with Knowing the Market
House flipping starts with researching the real-estate market. In order to sell a flipped house for a profit, you have to buy it at a good price. The only way to know if a property is a deal in a particular area is to gain a thorough understanding of the area. Before choosing a property to buy, you will need to have a grasp on market conditions – what and where people are buying, and why.
Your Finances Must Guide Your Decisions
Money dictates everything in flipping houses. You not only need money to purchase a property to flip, but you also need money to do the repairs and renovations to the property. So it’s critical to make sure your finances guide your decisions so you make a profit.
Ideally, you purchase the property with cash. You don’t know how much profit you’re going to make before you finish renovating, so you want to avoid incurring any debt on the property. This brings up the other important financial consideration – the price you buy the property at is more important than what you sell it for. In order to make a profit, you need to buy a house for a good deal. Don’t max out your budget on the purchase so that you can max out the renovations so you can maximize the sale price and your profit.
Not Every Investment is Smart
Spending your money wisely will help flipping houses be a profitable venture for you. Just like you need to understand the market for a property, you also need to understand what it will cost in time and money to flip a house. Before buying a home to flip, be sure you consult a real estate agent and a contractor to learn exactly what repairs will be needed and how much they will cost and how long they will take to complete. Time is money in flipping houses and you don’t want to lose money to unexpected repairs or renovations if possible.
The 70% Rule is a Good Guide for Smart Investing
The cost of flipping houses varies greatly depending on a lot of factors. But, experts say following the 70 percent rule to buy a property is a good rule of thumb. To determine the 70 percent, you would need to:
- Estimate what you could sell the house for after repairs and renovations (the after-repair value).
- Estimate the cost of repairs.
- Take 70 percent of the value and subtract the cost of repairs.
That number will be your maximum spend to buy a house to flip.
You can make money flipping houses, but it starts with making smart decisions. Understanding the market, finances, and resources is critical to finding success.