In the real estate market, one of the best ways to rake in huge profits is by flipping houses. However, just like any investment schemes, it entails a lot of risks and work. For this reason, it is essential to approach this with as much knowledge and caution as possible.
It may look uncomplicated and trouble-free. But the road to making a huge profit is not only about sold signs and curb appeal. Many realtors who don’t pay attention to the basics usually end up unsuccessful in their ventures.
To help you avoid floundering in the same sea of failed real estate businesses, we’ve rounded up some helpful ways or best practices for flipping houses and maximizing profits. Plus, a few mistakes which can make flipping houses a flop. Read on to know more!
Understanding the Mistakes
House flipping is a real estate investment scheme wherein investors buy properties to sell for a profit. This profit is generally obtained from price appreciation because of a thriving real estate market wherein prices are rapidly increasing.
Or, on the one hand, from capital improvements constructed to the property, even both. Say, for instance, a real estate investor may buy a fixer-upper in an accessible, sought-after neighborhood, build meaningful improvements, and then come up with a price that shows or indicates its amenities and new appearance.
Real estate investors who flip houses focus on the acquisition and future resale of the properties. A lot of investors try to make a steady income by contracting frequent flips. With this in mind, how do you flip a property?
Your aim should be to purchase low and sell high. Well, this is a typical plan. However, it comes with a few problems.
Lack of Money
Working in real estate is costly. The very first amount is the purchase cost of the property. Although no/low money down payment claims exist, looking for these deals from a reliable, trustworthy creditor is more easily talked about than put into practice.
Additionally, if you are financing the purchase, take note that you are paying interest. Also, if you use a home equity line of credit (HELOC) or mortgage to fund your purchase, remember that only the interest can be deducted.
Do research or probe your funding options broadly to identify which mortgage best fit your needs and get a creditor that gives low-interest rates. What’s more, renovation or remodeling costs should be included as well.
So, if you plan to renovate the property and put it up on sale for a profit, the sale price of the property should go beyond the combined expense of renovations, purchase, and holding the property.
Lack of Skills
More often than not, skilled professionals and professional builders, like plumbers and carpenters, flip properties for added income. These people have the experience, skills, and knowledge to look for a house and fix it.
Also, some of them work at a labor union that offers unemployment salaries during the winter season while they flip houses. Take note that the real money in flipping properties derives from sweat equity. So, if you can install kitchen cabinets, roof a house, hang drywall, or lay a carpet, then you have got the right skills to do house flipping.
But if you’re not handy at all, then you must hire a professional to do the repairs and renovations. Thus, the likelihood of making a significant profit on your real estate investment is lessened.
Lack of Time
Restoring and flipping properties is a venture that takes a lot of time. In fact, it can take several months to discover and purchase the correct property. And once you’ve bought the property, you will need ample time to fix and refurbish it.
If you hire a professional, you will need to invest a lot of time monitoring and overseeing the activity. Plus, the expense of paying other people will cut down your profit. On the other hand, if you have a regular job, time spent on construction and demolition can mean lost weekends and evenings.
When the work is finished, you must schedule home inspections to ensure or guarantee that your property acts in accordance with state laws and regulations before you put it on sale. If, for instance, it does not, then you must invest more money and time to ensure it complies. What’s more, it can take a lot of time to sell the property.
Lack of Patience
Most novices rush their way to purchase the first property they see, while professionals wait and take their time for the right property to arise. Because of these, many people delving into this business, minimize profits and maximize costs.
Lack of Knowledge
To succeed in your real estate venture, you should choose the right property, at the right price, in the right location. Also, it is important to know which improvements to skip and make. Plus, you need to know the necessary zoning laws and tax laws and understand when to get out and cut your losses before it becomes a money pit.
The following are some of the best practices to keep in mind about flipping houses and maximizing profits.
Ensure a Great Credit
The concept or notion behind house flipping is to purchase a reasonably affordable, inexpensive property and fix it up, then put it up on sale. However, if you don’t have enough investment cash or have a bad credit score, then you cannot purchase or acquire that property in the first place.
With that said, before you do anything else, make sure to examine and assess your credit score. You can check your credit score without paying any amount by getting a credit report from any credit reporting institutions in the United States.
Therefore, if your cash reserve or credit score isn’t as good as it must be, then it’s recommended or ideal to aim your attention on building it up first.
Look for a Profitable, Lucrative Location
When it comes to restoring and flipping properties, one important thing to keep in mind is that you can boost the value of a property. But, it will be more challenging and tough to enhance or make the neighborhood better.
With that said, it’s crucial to research and survey the locations or neighborhoods of any investment property you’re planning to maximize ROI or return on investment. Therefore, you need to know or determine the maximum amount of your chosen home types are selling as well as how quick they’ll be off the market.
Also, it is an excellent idea to pick locations or neighborhoods that are close to you, particularly if you are still a newbie at this venture. In this way, when doing research, you won’t overextend yourself.
Invest in Entry-level or Standard Homes
The real estate market offers an extensive array of housing options, from single-family houses to studio apartments to a 5-bedroom home. So, how can you determine which of these housing options you must go for?
Well, the answer to this question relies on your experience and capital in the house flipping venture. Plus, a considerable amount of market research. However, if you are still a beginner, an excellent approach is to opt for a standard or entry-level homes because there’ll be ample demand or market for that.
An entry-level house would have at least four bedrooms, which is ideal for a small to medium family size. Plus, depending on the area, it should also have an entry-level price. The plan here is to look for a property that you will not find challenging to flip in the long run. Additionally, it is wise to find a house that will not swallow your entire budget for renovations.
Study Market Data
Explore and analyze your housing options as deliberate as possible. You must undertake reasonable steps, collect all the necessary information, and make well-informed decisions. Calculate the risk and reward to limit risk and prevent losses.
Do an in-depth examination or analysis of the costs or expenses of renovations to mitigate mistakes and costly surprises later on. What’s more, it is very important to take home inspection services to your advantage.
When you purchase a property for flipping, it must only require cosmetic improvements. In this way, you can maximize your profits. House inspections can reveal and uncover potential money pits concealed under the basement or behind the walls.
Moreover, you need to do extensive research on market trends. Look into which home improvements should you focus on and invest money on — additionally, factor in your neighborhood analysis data.
Say, for instance, in the near future, will there be brand-new buildings and structures in the area that’ll possibly lower or raise the value or worth of your investment property. With these things in mind, you will be able to understand and learn what you are getting into with the hopes of spending less money to maximize your profits.
Get an Excellent Team
Flipping houses means working with the right people. Maybe you can research your own market by yourself. However, when the process of purchasing an investment property is starting, you will need the help of an excellent team or work with professionals.
For this reason, be ready to deal with home inspectors, lawyers, and realtors. And when you are more than ready to begin the renovations or restoration, you need to look for builders and a reliable contractor.
Thus, you need the best team with you. Make sure to check and assess their portfolio and study what their past customers are remarking about them. Take note that working with the right team will help you cut down unwanted, surprising expenses, and stress.
Sell the Property as Fast as Possible
Your goal should be to flip the property in just several months after you have refurbished and restored it. Keep in mind that the longer it stays on the market, the more expensive it will be for you in terms of maintaining it.
The expenses of maintaining it will consume or chew your potential profits. For you to sell the investment property as fast as possible, you need to work with the right real estate agents.
Also, think about getting a company that will stage your property. These staging companies can aid you in selling the house more effectively and get it off the market real soon. Thus, to put it simply, if you want to maximize your profits, a quick sale must be your top priority.
Restore the Property With Selling in Mind
Revamping or rehabilitating a property for flipping is extremely different from renovating a home you are planning to reside in. Rather than undertaking some personal touches, consider this as building an appealing canvas for your prospective home buyers.
By that we mean, renovations or improvements must have an inviting and a more general approach. In this way, your potential homebuyers can see themselves residing in this house. What’s more, you need to consider the expense of renovations as well.
Undoubtedly, you’re trying to make a profit from this investment property. Thus, you need to think about your budget. Additionally, opt for improvements that can generate most returns. And this is where your data analysis and market research will be very beneficial.
Many people think that flipping properties is fund and relatively easy. But as glamorous and fun it seems on tv, flipping houses is a venture you need to treat as carefully as possible.
There are a lot of things to consider when you delve into this investment. You need to do a lot of researching and take your time to assess the investment property extensively. What’s more, keep in mind that no business investments are without risks, yet by making sure that you make well-informed and rational decisions, you will succeed in your business venture.
Flipping properties can be a very profitable business venture, especially with the correct approach. Keep these best practices in mind to guide you through your choices.
About the Author: Analisse Weathers is a blogger and writer. She mainly writes about loans, real estate, home improvement, home renovation, home repairs, and just about anything related to home-related subjects. Analisse loves to write these topics as she aspires to become an interior designer someday. In her spare time, she spends time with her family and friends.