Finding a Flip
Flipping houses is becoming increasingly popular. Unfortunately, the popularity of the idea is creating a bit of competition among those who would love to try it out for the first time. The increased competition often serves to drive up the costs involved in purchasing the profit, which only manages to lower the profit potential. Asking a few questions and knowing the answer prior to buying the property will help in maximizing the profit that is sought.
1) Did the inspection reveal repairs that need to be made to the property and the landscaping that might cut into the anticipated cost of the project? This is important because every repair that needs to be made will eat into the budget. The goal is to complete the project with as little extra money invested as possible in order to get the greatest return on investment possible.
2) Is the property suitable for the neighborhood? Rephrased – is the property a three-bedroom house build for families in the middle of a retirement community or is it a one bedroom, cottage-style home in the midst of family houses? These aren’t exactly a good match and can cause problems when it comes time to sell.
3) Can the neighborhood bear the price needed to bring a profit or clear costs from the flip? Creating an upscale home in a marginal neighborhood is almost guaranteeing a loss on the investment. Find a house in need of repairs selling cheap in a neighborhood of much better houses so that it can bring in the profit sought when all is said and done.
4) Can the changes envisioned for the house on the budget allotted happen without significantly changing the structure of the house? This is a biggie and one that often gets overlooked. Knocking out walls or creating additions are costly and make no sense when flipping a home. Such construction should be left for the new owners to decide. In flipping a property, only make changes that will improve the value of the home.
5) Can the improvements increase the value of the home enough to make it worth flipping it in a short amount of time? This is another big deal when it comes to a house flip. It takes time and money to make the changes that most “flippers” have in mind for their investment, especially first time flippers. A good question to follow up is, “Do you have the time to stick with it and the money to cover the carrying costs while you are in the process of making the changes?”
6) Is the property in a high demand neighborhood, city, etc. for selling properties? Another common mistake is buying in areas that are hard sells for buyers. It is often quite simple to find lower priced properties that are attractive at first glance, however; if the property won’t sell purchasing the property to flip really defeats the purpose of putting all that time, effort, and money into making the improvements.
7) Who is going to do the work? Overestimating abilities may cost in the long run in having to hire a professional to undo mistakes or speed up a project. Having a realistic understanding of the potential costs involved in the flip and whether or not the property will still be profitable in the worst-case scenario.
Answering these questions when checking out potential real estate investment and house flipping properties will make the selection much easier. When maximum profit is the goal, careful consideration is a must.