When the market crashed, house flipping fell with it, but it didn’t go away completely. Today, home prices are back on the upswing and the opportunity to buy houses on the cheap, make repairs and sell them for a tidy profit are on the rise.
Here’s what you need to do to flip homes quickly and profitably:
1. Review your finances. Examine your finances to ensure that you have enough money on hand to buy a home and to hold it for at least six months. Certainly, you want to buy, fix and repair that home within two to three months, but the extra months will cover any contingencies including unexpected repairs and low demand for the home once it is on the market again.
2. Obtain your credit reports. Besides needing sufficient cash to acquire a home, you’ll need excellent credit to secure a mortgage, especially if you cannot afford a cash-only transaction. Obtain copies of all three credit reports — Experian, Equifax and TransUnion — reviewing same and fixing potential problems. Acquire your credit score too — that three digit number should be at least 740 to receive the best mortgage deal possible.
3. Know your neighborhoods. Likely, you have some idea for the ideal neighborhoods to acquire homes. You need to be familiar with those neighborhoods just as well as you know your own, with a good grasp about its crime data, proximity to schools and work, area housing trends including the number of distressed properties available, and pricing. Drive and walk around each neighborhood to get a feel for how homes are cared for — too much blight and your investment may turn sour. On the other hand, a tidy neighborhood could contain homes that are overpriced.
4. Examine local comps. What are homes selling for in your interested neighborhoods? How much did homes sell for in the past several weeks to months? You need to examine the local comps, to determine area pricing. You’ll use those prices as a benchmark for the homes that interest you.
5. Speak with a mortgage professional. Work with a mortgage professional who knows your situation. Explain that you’ll be buying a home with the intent to make repairs and sell it as quickly as possible. Learn what mortgage options are available to you. Have a contingency in place in the event that you end up keeping the home and renting it out.
6. Work with a contractor. Unless you’re the general contractor, you’ll need an individual that can handle the job for you. Work only with someone who is mindful of your need to buy and flip a home quickly. He’ll have his contractors assembled and should be able to respond to your needs right away. Your contractor can also look at the home you’re interested in buying and give you an estimate of the repairs and improvements needed.
7. Make an offer. When you find a home that you want to buy, make an offer. Negotiate a price that is fair. If the property is distressed or in foreclosure you may not get a response back from the bank immediately. In any event, your banking contacts can come in handy to help you close the deal. Once the deal is made and the closing completed, the clock has begun on your flip.
8. Complete repairs and improvements. You bought a home worth $350,000 for $238,000, a $112,000 price spread. However, you won’t see anything near that amount when all is said and done. The home needs $40,000 in repairs and improvements, and will cost you another $21,000 in real estate fees. Moreover, every month that you hold onto the home will cost you about $3,000 in overhead or $9,000 for three months. That $112,000 spread is now down to $42,000, the amount you hope to make with your flip. This means completing your work as quickly as possible and getting the home back on the market. For each month that the home doesn’t sell, you’ll need to reduce your profit accordingly.
Flip This House
Flipping homes is not for the novice or for the faint of heart. It is tough work that can yield too many frustrating days and sleepless nights. Know your tolerance level before wading into an often distressing, yet potentially highly profitable venture.
See Also — Is It a Fixer Upper or a Money Pit?