Have you ever thought about flipping homes? Many people have, and in the first quarter of 2022, more than 114,000 homes were flipped for profit. This figure is up 7% from Q4 of 2021, so there’s a market for flipped homes. It can seem like a great way to make extra money, and it’s a lot of fun. But there are a few things you need to get right if you want to be successful. Here are the five most important things to remember when flipping homes.
1. Location, Location, Location
This one is pretty self-explanatory. The location of the home you’re flipping will be one of the most essential factors in determining how much money you make. You want to find a neighborhood that’s up-and-coming but still has affordable properties. Some up-and-coming areas to keep an eye on are east of downtown Los Angeles, North Portland, and near Denver’s Union Station. But generally, you want to find a neighborhood that’s close to good schools, has low crime rates, and is close to shopping centers and hospitals.
When you invest in an upcoming area, you can get a property for a relatively low price and then sell it for a higher price once the area becomes more desirable. But beware, if you buy in an area that takes too long to develop, you might be stuck with the property for a while and end up losing money. Do your research and talk to a real estate agent before you commit to anything.
2. Get the Right Team
Flipping homes is not a one-person job. You will need a team of experts to help you through the process. A real estate agent, a contractor, and a real estate lawyer will be essential if you want to flip a home successfully. A real estate agent can help you find the right property and negotiate the purchase price. A contractor can help you find the right team of building experts to renovate the property. And a real estate lawyer can help you navigate the legalities of flipping homes, such as drawing up contracts and dealing with local zoning laws.
Make sure you interview multiple candidates for each position and ask for referrals. You want to make sure you’re working with people who are reliable and who have a good track record.
3. Know Your Numbers
This is probably the most important thing on this list. Before you start flipping homes, you need to have a firm understanding of the numbers involved. You need to know how much it will cost to buy the property, how much it will cost to renovate it, and how much you can realistically sell it for when it’s finished. There’s no room for guesswork here. You’re setting yourself up for failure if you don’t know your numbers.
For starters, you need to know how much you can realistically spend on a property. You don’t want to overspend and end up in debt. A good amount to aim for is 70% of the after-repair value (ARV). This is the estimated value of the property after you renovate it.
4. Stick to Your Budget
Once you know your numbers, you must stick to your budget. Home flipping can be tempting because it seems like easy money, but it’s not always as simple as it looks on TV. There are always unforeseen expenses that can pop up, so you must have a cushion in your budget for those unexpected costs. Otherwise, you could find yourself in financial trouble very quickly.
When you run out of funding, putting the property on your personal credit card can be tempting. But resist that temptation! This is a business transaction and should be treated as such. Fortunately, there are alternatives to getting financing for this project. The quickest way to get an influx of cash is to take out a mortgage on your personal residence or to get a home equity line of credit (HELOC). But be careful with this option because you don’t want to put your private residence at risk. Talk to your local mortgage broker to see what other options are available to you.
5. Have Patience
Finally, patience is key when flipping homes. It can be tempting to rush through the process so that you can start making money as soon as possible, but that’s usually not a good idea. Take your time and do things right so that you end up with a quality product for which people will be willing to pay top dollar. Rushing things will only lead to mistakes, and those mistakes can end up costing you a lot of money in the long run.
If you want to flip homes for profit, there are a few things you need to keep in mind: location, getting the right team together, knowing your numbers, sticking within budget, and having patience. Keep these five tips in mind and happy flipping!