Yes, Flipping Homes is Still a Thing But Is it Worth it?

In spite of rapidly increasing home prices… or maybe even because of… house flipping remains an attractive enterprise. Investors are continually on the hunt for that valuable opportunity.

But flipping a house, or multiple houses, is never all fun and games. There is hard work and considerable financial outlay involved. You don’t always know what’s beneath the surface of the property you’re buying, and often it remains a mystery until you’re well into the project.

Flipping a house can be extremely profitable, or it can be disastrous, the undertaking of a complete rehab or a simple matter of maintenance. Often the outcome is entirely up to you. To buy the property, make improvements and sell it at a profit, you must choose the right property and make the right renovations. It’s easy to make costly mistakes so even if you’re not new at this game, getting professional advice can be crucial.

So what do you need to know to flip a house?

Choose the Right Property
You don’t want to find a house that you think you can easily flip to earn a profit, then wind up overwhelmed by the costs, amount of repairs or inability to sell. Shop neighborhoods first. What price ranges are selling, at what rate, and which neighborhoods are most in demand for the price-range in which you plan to sell? It should go without saying that you’ll want to have the property inspected before you buy. Know to the best of your ability, how much work it will need. A real estate professional with a thorough understanding of the local market can help you find a good deal on a house worth renovating and reselling. Which locations have a history of successfully flipped homes? Where are the favorable markets? Which are the best cities?

Consider the Right Upgrades
If a house needs major (read expensive) repairs to make it safe or inhabitable, such as new roof, heat/ac, plumbing or electrical work, you will need to make those improvements. That means you might have very little wiggle room left in your budget for the cosmetics that will appeal to a home buyer.

Flippers sometimes spend so much money on improvements that they earn little or eve no profit at the end of the day. Redoing a kitchen and/or bathrooms can be costly and may not add nearly as much to the sale price as you’ve put in. Investment in less expensive improvements like paint and carpeting can lead to a much higher profit margin. Consider too, that improving a property too much can result in a value significantly higher than the rest of the neighborhood. You may wind up struggling to attract a buyer.

Be Realistic About Costs
Lay out your budget in advance. Force yourself to be realistic, and keep in mind that renovation projects frequently go over budget or, especially in this environment of ‘shortages’, get delayed. Contractors my find additional problems after work has begun. Not only might actual costs go over budget but time will exact a penalty as well. Consider the cost of utilities while you’re working, as well as real estate taxes, insurance and any mortgage payments.

Hiring a contractor will reduce your potential profit, and you will require lots of time to communicate with them and supervise the work. But if you’re unfamiliar with the renovation process, employing a contractor, or several specialized teams, would be a smart choice.

If you have construction experience you’re way ahead of the game. You may be able to make some or all of the repairs yourself, keep costs down and maximize your profit. But be aware that it will likely become a full-time job and require additional time and incidental expense.

Avoid Taking on Debt
Borrowing money to finance improvements can make things even riskier. You’ll incur interest on the loan, which can eat into your profit margin. If you’re struggling to make loan payments, you may be forced to sell the property before completion at a lower price. Working with cash permits you a larger window of time to allow housing prices to rise.

Do Your Research and Get Expert Guidance
Make no mistake, flipping houses can be lucrative provided you proceed with a carefully planned series of informed decisions. Ask your real estate agent for help choosing a specific neighborhood and an appropriate property. Have the home inspected. Set a reasonable budget, and be realistic about the amount of time and money required to maximize your potential profit.
Reprinted with permission from RISMedia. ©2020. All rights reserved.