HGTV and DIY tv shows make house flipping look quick, glamorous, and easy enough: buy a house at a discounted price, make some improvements and then sell it for profit. However, there’s so much more involved with house flipping that if you’re not careful, you can lose way more money than you ever stood to make.
Here are 6 things you need to master if you want to get house flipping done right.
Expect and Manage Risks
In the house flipping industry, there’s nothing but risks. The higher the risk, the higher the reward. To be successful, you have to expect and anticipate risks as well as prepare for and manage them.
The biggest pitfall you want to avoid in house flipping is over-improving the property. It is not a great idea to be the best house on the block. The key to a successful flip matches quality and price on all levels. Train yourself to choose options that meet the quality and look of the home and the neighborhood without going too far over. Looking at current or recent renovations help.
House flipping costs money. It costs money to purchase the home, money to rehab the home, and money to sell the home. In an unfortunate circumstance where you’re unable to sell the home, it will cost money to maintain and own the home. Mastering your funding strategy is essential to successful house flipping.
Budgeting is a great way to prepare and plan for house flipping projects; however, they only estimate so sure to keep a cash reserve in case any hiccups arise. Know what interest rates you can expect, be familiar with short-term funding options and your timeline. If you aren’t able to sell the home, or it takes longer to complete the flip, you may be stuck with two mortgages.
Making Quick, Solid, Decisions
House flipping is competitive and fast. As soon as you close on the home, you have to get started. Every day that the home is in your care, costs you money. Price your homes competitively so that they sell fast. Properties that sit on the market not only cost you more, but they may lead to maintenance costs and repairs.
Many people follow the 70% Rule when looking for properties to flip. In short, the 70% Rule means buying the property at 70% of the after repair value of the property after deducting the renovation costs.
For example: $160,000 offer on a home with an after renovation value (ARV) of $300,000 that requires $50,000 in renovations ($300,000 x 70% – $50,000 = $160,000).
Getting used to finding real estate deals will take some practice; however, keep in mind that the 70% Rule is a rough estimate of what could happen. It’s not a guarantee of what will happen. Don’t forget to consider taxes, holding costs, financing costs, selling/marketing costs, and closing costs.
Before choosing a property, run the numbers on no less than twenty properties and then choose around ten properties to visit. After visiting the properties, revisit your analysis to determine what would make the most sense and narrow your options down until you find the best one.
House flipping involves a lot of numbers. Once you find a rhythm, analyzing deals and data will become a lot more natural. When you’re looking at deals don’t forget to consider:
property’s current value in current condition,
material and labor costs, and
estimated holding time and costs of temporary ownership (e.g., taxes, utilities, permits, water, sewer, HOA, etc).
Find your “thing” and stick to it. Success comes with acute focus. Whatever you decide to do (single-family homes, duplexes, etc), choose carefully and become the expert in your field. It will make finding deals and house flipping a much smoother and enjoyable process.
Keep in mind that successful real estate investing requires a team. Look for and find agents, lending professionals, tradesmen, attorneys, and contractors that you can depend on and trust. They’ll be crucial to your success. Contact Hornet Capital Solutions to discuss how we can work together to build your house flipping business, today.