How Not to Have Your First Flip Flop
It seems the craze has taken over, with the TV shows Flip This House, Flip That House, and Property Ladder; there is a growing desire for Americans to make their quick fortunes in real estate. To purchase a home for next to nothing, fix it up and sell it for full value. There are a few details that the first time flipper needs to know before diving into the piles of gold just waiting for him at the closing table.
Don’t spend your money!
Don’t spend money on advisors who are going to tell you how to do this. Don’t spend money on seminars or books and CD’s and DVD’s and infomercials. Do your own homework.
Find your money!
You will need money to purchase whatever home you find, and usually you will need it quickly once the decision is made to purchase. Find your source up front, before house hunting. Whether you plan on using funds you have stored under the mattress, or a lender, make sure your money is available up front to pay for the purchase, the renovations, and the payments while the house is being fixed. I do not recommend using credit cards and borrowing money from people (whether they be investors or family members). Use your own cash or get a loan.
Find the correct Home!
Location, Location, Location. There is nothing worse than finding a perfect home for nothing and knowing it will cost you next to nothing to fix it up to only find in the end that you can’t sell it due to the neighborhood soon will have a turnpike running through it. Pick established neighborhoods, with good schools, and yards that the children can run around in. Pick a home that is ugly. You need not be afraid of the home with the foundation issues if there is enough profit in it. Other people will shy away from these homes, and you can likely get it for a rock bottom price, but be aware that the improvements in a home like that can be costly- weigh your options well. The best way to find a house is by knowing people. People who’ve had a divorce, a friend of a friend who’s mother recently moved to a nursing home, the abandoned house on the corner that’s owned by the aunt of your co-worker.
Do Your Homework!
1. Hire a Real Estate professional for a complete report if you do not have access to MLS (Multiple Listing Service). DO NOT assume that because there are three houses on the street that are for sale for $275,000 that your house should be worth around $290,000- $300,000 because you are fixing it up. Your house will only be worth what the comparable (in size, age, room count, and acreage) homes in the area have ALREADY sold for (no matter how many granite countertops and flat screen TV’s you install). Make sure you do not over-do it for the neighborhood.
2. Make sure you get a home inspection. Know what repairs you’re getting into up front.
3. High ball your repairs budget; Lowball your sales price. Your house will ALWAYS cost more than you expect it to, and you can always end up selling it for less.
Get ‘er Done!
1. Do not live in the home your are planning on flipping, only do that if you are fixing it up for yourself, and in that case it is not a flip. It is not worth the upheaval to your life, by having to move into a home that will be a pounding, concrete, sawdust-encrusted, loud, uncomfortable place where you will not get any rest. Leave work at work and leave your home-life out of it.
2. Contractors- Get an experienced person you can trust. A hard worker who will stay on top of the workers for you. You will have the stress of the entire project and the money on your shoulders, don’t take on the stress of the juggling workers also unless this is something you already have experience with. Even then, it might not be the best move for a first time flipper; taking on the guys is sometimes the straw that breaks the stress-camel’s back.
3. Pay attention to the budget. Stick to it as much as possible. Don’t be an impulse buyer at HOME DEPOT- Make your plans to the best of your ability and aesthetics and stick to them.
Add a bathroom. Don’t just replace, improve. The wall in the middle of the hall there? Remove it if it’s in the way, put an arch in it if it is too square. Don’t just make your home freshly painted and pretty; make it a home that someone will be willing to pay money for. Make it better than what it was.
4. Accept the gratitude of neighbors. They will hunt you down and stand in line to shake your hand for making their neighborhood a prettier place. It is a nice feeling.
5. Take pictures every day. Give them to the new buyers at the sale. They will appreciate the effort and you will have the record of your work.
Get Out Fast!
Stick to your timeline as much as possible. It is sometimes impossible to be “in and out” of the home. It hardly ever works like that, if ever. Do not assume you will get all of the repairs, get it sold AND closed in a month. It is an unrealistic goal. Assume you will have a few mortgage payments to make and schedule them into your budget. When you put the house on the market (as soon as you possibly can) take a little piece of advice- Find out what the other comparable homes are priced at, and put your just BELOW them. Yours will then show up on the top of the list in MLS and internet searches, and thereby get you more showings. Once the house is for sale DO NOT say you will not budge on price, if it is not selling quickly, get it to sell quickly. Whether it’s by inviting the entire real estate community to the house for a OPEN HOUSE BBQ, or reducing your sales price, don’t hang on to it too long; the money your trying to earn by being stubborn will go right out the window.
Now you’ve got the basics. Talk to experts in their fields. A home is a big purchase whether or not you were able to pick it up cheaply. It is a responsibility, and a joy in making something beautiful where there was once just sticks and rotten boards. Good Luck!