RE Investment Series: Things to Consider When Flipping Homes

Flipping homes can be a great way to make a lot of extra cash, but it also comes with quite a big risk. These projects take a lot of work, tie up a substantial amount of money, come with unexpected costs, and can lose money if markets change during delays in the flipping process. How do you know flipping houses is right for you, and what should you do to ensure success?

Establish Your Budget and Funding

Before you can start flipping homes, you have to understand the financial level of risk you are willing to take on. How much money are you willing to spend, and where will the funding come from? Keep in mind that your budget needs to include a buffer for unexpected costs that may come up during the inspection or rehab process. As for funding, you may choose to fund the projects with your own money, take out loans from private lenders, refinance an existing mortgage, tap into a home equity loan, or crowd-fund the investment. Each of these methods has its own pros and cons and should be considered very carefully.

Know Your Market

How well do you know the area where you plan to flip houses? Do your research into recent sales of similarly renovated properties. If you can, go to a few open houses and take a look around. Don’t just look at sale prices - keep an eye on how long properties sit on the market. Set up alerts for any articles written about new projects coming to the area, like shopping centers, hospitals, schools, etc., that may impact home value in the short term. Speaking with a local realtor is great way to get to know your market. They are the ones who are most in the know about market trends, good neighborhoods, and projects happening in the area. Finding a trusted realtor to partner with insightful market data will be invaluable for your success.

Find Good Deals

The only way you are going to make good money flipping homes is if you are able to find homes that are low enough to be profitable when you flip and sell them. Connecting with a local realtor will be your best avenue to find a low-cost home that you can flip. They’ll be able to use their market knowledge and extensive connections to find homes that wouldn’t be accessible through typical search methods. These houses could include homes that have sat on the market, good homes with small cosmetic issues impacting their value, loan defaults, foreclosures, or sellers who inherited the property and are motivated to sell it. Your realtor will keep you in the loop about all listings that fall under these categories so you can secure good investments to start your flipping business.

Set Realistic Timelines

The easiest way to lose money on a flipped house is to drag out the process. The faster you can get things done - while still doing them properly - the shorter your money will be tied-up and the faster you can move on to a new money-making project. Typically, a flipped house can take between three to six months, so establish a tight schedule and stay on top of contractors to ensure your properties fall within that limit.

Prioritize Your Repairs

Not all repairs need to be made to sell a flipped home. For example, even though the kitchen could use a more modern countertop, that may not make enough difference for the cost and time of that repair to make sense. Instead, focus on repairing the faucet, replacing hardware, and cleaning everything down to make it attractive to buyers. Make a thorough punch list of all repairs and stay in communication with anyone working on the flip to ensure timing stays on track and tasks are completed correctly.

Find a Good Team

The benefit of a good realtor cannot be overstated when you are looking to start flipping homes. Their expertise, market knowledge, connections, and ability to walk you through the process will ensure a smooth, successful process. In addition to connecting with a realtor who can partner with you, you should also find a good construction crew or contractor - your realtor may be able to recommend someone. Money can be lost very quickly by delays or poor work when flipping homes, so finding someone who does good, timely work is essential.

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