House Flipping: Strategies for Beginners

Are you considering flipping a house? Going into a flip without enough background or experience sets you up for financial hardship and a long selling period. But with a little know-how and patience, real estate flipping can be a high-return investment.

Start Simply

Experts recommend investing in a single property when you are just starting out. Some new home flippers look at the potential profit of flipping multiple properties and get in way over their heads. While it’s certainly possible to work on more than one flip at a time, you are more likely to end up with several unsellable properties on your hands if you spread your resources too thin.

A house could take months or years to sell, so don’t quit your day job (at least not right away). Look for a project that you have both the time and funds to properly turn over. Wait until you are in a stable financial situation, otherwise you may end up struggling to make ends meet if a flip doesn’t go through as quickly as you’d like.

Hammer Down Your Budget

Before you even begin looking at properties, it’s important to establish your budget so that you aren’t sucked into a project you can’t afford. Consider all your potential expenses, such as:

• The Mortgage Down Payment: Gone are the days of subprime mortgages. Nowadays, the bigger down payment you can afford, the lower your interest rate will be.
• Insurance: Don’t skimp on coverage just because you don’t intend to live in the house yourself. Insuring the property protects your monetary and work investment in the project.
• Taxes: You’ll need to pay property taxes on your new property.
• Fees: You will likely want to enlist the help of a real estate agent. Talk to several agencies to see what kind of fees you can anticipate. If you are drafting any extras into your housing contracts, you’ll also want the help of an attorney.
• Renovations: Flipping experts recommend that you increase your total estimated budget by 20% to cover the necessary renovations if you’re investing in a fixer-upper.

Give yourself a roomy budget. It’s better to have an unexpected windfall at the end of your renovations than to go into debt while trying to make your new property sellable.

Do Your Homework

It’s common sense to want to buy low and sell high, but more goes into choosing a property than just pricing. Many people only think of foreclosed or run-down properties when they hear the phrase “real estate flipping,” but investors can flip luxury properties and new construction as well. Each of these categories of flipping come with their own set of concerns.

New Developments

If you’re interested in flipping without putting in a lot of time and money into renovations, you may want to investigate buying a newly constructed home. When whole neighborhoods are on the market, you may be able to get a bargain and resell at a higher price when more people move in.

Just be sure to check out the development requirements. Some new construction sites require that owners live in the home for 6 months to a year before selling so that the area isn’t left uninhabited and uninviting.

Fixer-Uppers

Visit any fixer-upper in person before you buy. A house may look great in online listing pictures, but visit in person before buying or you may arrive onsite to discover a termite or foundation problem you would’ve noticed if you’d seen the property in person before buying.

If you plan to outsource some of the renovations, look for subcontractors who are trustworthy and professional, or enlist the help of a general contractor. Cheap fixes may come back to bite you when you’re selling. Look for materials that are high quality and suited to local conditions. For example, if you need to replace windows in Aurora or another notoriously cold city, spring for casement or multi-pane windows. Consult with well-established suppliers like Northern Comfort to determine your best options.

Luxury Properties

Buying in a high-end neighborhood is a bigger initial investment, but it can also produce a higher return. Watch for areas with lots of new development, such as retail chains and restaurants, as these draw in lots of prospective buyers.

Be Patient

While your ideal timeframe may have your new property back on the market within a few months, it may take longer. Many obstacles can arise that make renovations take longer. The real estate market is cyclical, so there’s no way to accurately estimate how long it will take to sell a home once it has been refurbished. Be patient and give yourself plenty of time for the entire process.

With proper preparation and a solid budget, flipping a property is a great investment.

Author: Anica Oaks.