Television shows like Flip or Flop and Fixer Upper make it look easy to find an outdated, low-priced home and transform it into an incredible property that nearly doubles in value. The reality for most home flippers is a little different. It takes time, money, and expertise to flip a property, and most first-time flippers flounder as they try to regain control of their projects.
The road to a successful house flip is riddled with ups and downs. If you’re prepared with the right tools and knowledge during your house flipping journey, you’ll be much better off.
Here are the general steps you should take before flipping your first home.
- Have the Right Mindset
Make sure this is something you really want to do. Rehabbing houses is challenging and comes with huge rewards as well as major setbacks. You might not make as much as you had hoped or experience greater stress than you expected. With the right mindset, you can maintain realistic expectations and be more satisfied with the outcome, whether your profits are great or small.
- Get Finances in Order
Late-night infomercials and radio seminars will have you believe that house flipping has a low-cost entry barrier, but that’s not true. “Nobody is going to hand you a house for free, and you can’t go to Home Depot and they’ll give you your supplies for free,” Mindy Jensen, community manager at Bigger Pockets told US News. “If you are using credit cards and have no money, you can get into trouble quickly.”
Before you begin looking at houses and sketching designs for your remodel, make sure you can finance not only the home purchase but the rehab as well. Remember that lenders usually won’t finance you past the current value of the house, so you may have to look at less conventional methods to get adequate financing.
- Choose Your Market
Rehabbing for profit doesn’t work in every market. Some communities aren’t interested in higher-end homes and fancy layouts, so you’ll have a hard time making money with your renovations. Do a little research on your chosen market to ensure it will support the updates you’re trying to make.
- Find a Real Estate Agent Or Become One
At this point, you’ll want to start building up your house flipping team. Your realtor is one of the most important people on your team, as they’ll help you find the right houses at prices that can lead to a profit. Research real estate agents in your area, and try to use a realtor who has some experience in the house flipping sector.
If you’re interested in real estate, you might choose to become your own real estate agent. This costs between $400 and $1000, depending on your state, and takes between 90 and 150 hours of study. After you’ve passed the state and federal realtor’s licensing exam, you can cut out the middle man and be at the forefront of all your property transactions, lowering your expenses and increasing your success.
- Analyze Deals
“Without knowing what a good deal looks like, you can look at 1,000 houses and still have no idea what you’re doing,” explains J. Scott, author of The Book on Flipping Houses. He goes on to explain that understanding how value on a house is determined will keep you from making a bad purchase or throwing money into a renovation that won’t recoup a high return. Some renovations are less valuable to banks and appraisers than others.
The best way to analyze a property’s value is to examine comparable home sales in the area. Comparing these properties will show you how much you can reasonably ask for a rehabbed property.
- Hit the Market
Now that you’ve done some homework and established some of your team, you’re ready to search for properties. Go out with your real estate agent (if you aren’t one), and view lots of properties in your chosen area. This will give you a feel for what’s out there until you find the right home.
While you can find good deals through traditional avenues, oftentimes, the best way to find the perfect property is to purchase at an auction or find a wholesale property. Explore your options for finding more affordable properties that can increase in value with some work.
- Start Making Offers
Not all your offers will be accepted, so it’s okay to make more than one. If you find a few viable properties, make a few offers. After negotiations, you should find at least one at a good price. This is also good practice for the future when you’re successful enough to rehab several properties at once.
“Before you make an offer, make sure you know the uppermost price you can pay for a house, and still make a profit,” advises Heather Levin of Money Crashers. “This includes your estimate for repairs, interest, and taxes. Remember to pad your estimate by 20%. If the homeowner or bank won’t sell to you for this price, walk away. It’s better to keep looking, than to risk going broke from a bad investment.”
- Dot Your I’s and Cross Your T’s
After accepting an offer, handle the details, including a thorough home inspection and appraisal. If the numbers don’t match up, or the inspection results show more problems than you can handle, you can back out if it’s done within the window predetermined when you made the offer.
- Set Your Budget and Scope of Work
Your bank or financier will probably give you a limit as to how much you can spend on this project, but you can come up with a number based on estimates from contractors.
Then, create a detailed scope of work that says what you need to do for a high-value rehab and how much you can spend in each area. Include a detailed timeline of demolition and rehab time as well. A schedule will keep your contractor on task so that your project doesn’t take longer than necessary.
- Build a Solid Rehab Team
When you’re finally ready to start work, hire a great team of contractors. Most house flippers use a variety of contractors instead of one general contractor to save money, and all the interviewing, paperwork, and details can be a major undertaking. Work on this during the closing period so you’re ready to get started as soon as you have keys.
- Prepare for the Unexpected
While work is being completed, oversee the project carefully. There will always be problems, whether it’s the wrong shipment of materials or the discovery of asbestos behind the walls. A solid contingency fund will help you weather the storm, as will a stout mindset and a focus on the prize.
- Get to the Closing Table
When your rehab is finished, it will feel like the work is almost done. But you still have to sell the house. Staging the property and listing it with professional photography are two of the best things you can do to make this beautiful property appealing to buyers. Be patient during the inspections and appraisals, and be prepared for some of the things you’ll have to fix on your newly remodeled property. When closing day arrives, you’ll be ready for your check after a long process!
Contact Green Residential Today!
You might think that handling the rehab is the most difficult part of flipping a home, but it’s often the selling process. You want to get a good offer, which isn’t always easy in a tough real estate market.
If you’re flipping houses in the Houston area, Green Residential can help. Our agents know this area better than anyone, and our flat-rate realty fees make it easy to find great properties without hefty realtor fees. For more information about what our team can bring to your house flipping business, contact us today!