Flipping houses has become more popular than ever. Many of the newest real estate investors get into the business using fixer-uppers and flips as their main investments. One of the reasons for this is that just about anyone can do it. You don’t need a college degree to close your first deal. You don’t even need a great deal of money to make your first investment. While rehabs are very popular, it is not a guarantee that you will succeed. There are plenty of things that can go wrong during a flip. Before you buy your first house, there are a few things that you should know. These are things that can either make or break your deal. If you know the five most important aspects of any house flip, you have a good chance of being successful.
1. The Offer Price
The price that you purchase the house for is the beginning of the deal and it can have an effect on your success. If you can get the lowest price possible for the home, it will help you make more money later. Every dollar that you must spend that is over your bottom line will take away from your profits. Many new investors forget that the goal is not only to get their offer accepted, but it should be accepted at the price that they offer. Not only do you want to complete the project, you also want to make a profit. The price that you buy the house for has a great deal to do with this. If you end up needing to go over your asking price, you will have to compensate in other areas, often on the rehab. This can have a big effect on the final sale price of the home. As hard as it may be, you need to learn that in some cases, you need to walk away from a sale. Spending too much on the sale price will cause problems with everything you do during the project and right until you sell the house.
2. The Cost of Repairs
The amount of money that you spend to repair the house and the value of the home after the repairs have been made go together. You first need to start with the cost of repairs. The only way to make a profit in the flipping business is to add value by making improvements. It is important to understand that not all improvements will make you money. You need to make the right changes for the market. You don’t need to make your home look like every other home in the neighborhood, however, you need to make changes that buyers are going to appreciate. You should start by doing a walk through with your contractor to figure out a realistic improvement plan. The estimate you come up with should include the cost of the work, the materials, and the labor. This price will have an impact on the amount of money that you are willing to offer for the house. After the offer is accepted, you need to do your best to stay within your rehab budget.
3. The After Repair Value (ARV)
If your rehab is going to be successful, you need to consider how much the improvement that you make will increase the value of the house. With any improvements, you need to take a small leap of faith. You can do all of your research on comps in the area, however, there is no guarantee that you will get what you expect when you sell the house. The best thing you can do is study the market and find comps that buyers are looking at. Not ones that will be favorable to your sale. Sure, you can find comps that are priced at what you are hoping to ask, however, if you need one certain set price to make a profit, you could be disappointed when you are ready to sell the house. You can’t just take a guess at the ARV, you need to be sure that the work that you are doing is going to bring in the amount of money that you need to make a profit before you make an offer on the house.
4. The Budget
The money that you have set aside for repairs is not a number that you can play around with and be flexible with. Your bottom line asking price is going to have a great deal to do with whether or not you will be able to stay under budget. Many flippers don’t keep track of every expense associated with the rehab. Minor items such as insurance, certain materials, and carrying costs may all be small expenses, however, when you add them all up, they can have a huge impact on your budget. If you are going to take the time to create a budget, you should stick to it. If you go over your budget, you will need to compensate for the money in other areas. In some cases, it can work in your favor. More often, however, it will result in a smaller profit than you expected.
5. List the Home at a Realistic Price
Every flipper thinks that their property is the best on in the entire neighborhood. After all of the time and effort they put into making the property what it is, they think that the market will reward them for all of their hard work. The truth is that buyers don’t care what you went through to get the house to what it is when you have finished. All they care about is the finished product and how it compares to others like it that are on the market. If you think that your house is the best, you might be tempted to list it higher than you should. If you list at a reasonable price, you will get more interest in the house which can result in multiple offers. The longer the home is on the market, the more desperate you will become, Eventually, you will lower the price.
In order for a flip to be successful, you need to take each of the items above into consideration. If you are new to the business, you need to understand that even the most experienced flippers pay attention to the above considerations as well.
This is why they are so successful.