| Flipping Homes...Flipping Houses... What is | | | | know every hinge or piece of hardware that's |
| everyone flipping over? | | | | off. |
| | | | |
| In the past five years, you've obviously | | | | If your home inspector can give you a |
| heard the buzz surrounding flipping homes. | | | | ballpark estimate of costs, that's all the |
| There's a new TV show popping up weekly, it | | | | better. This way, you've got a second set of |
| seems. And it's hardly even possible to keep | | | | eyes looking out for you. |
| track of them all these days. | | | | |
| | | | *** BONUS TIP *** You can often use a home |
| But, what's the real scoop behind all the | | | | inspection to ask for credits or renegotiate |
| "flipping houses" buzz? And is it right for | | | | the purchase price. |
| you? | | | | |
| | | | Step 4: Don't Get Emotional |
| In this article, we're going to dispel some | | | | |
| of the myths surrounding flipping homes and | | | | Flipping a home can be emotional by nature. |
| also give you the steps in case you want to | | | | Murphy always rears his ugly head when you |
| jump in. | | | | least expect it. So, don't become so |
| | | | desperate! Don't let your emotions get |
| First off... the term "flipping houses" often | | | | involved. If the numbers don't work, move on |
| refers to two different things: | | | | to the next house. There are plenty of homes |
| | | | on the market to flip and there's no reason |
| 1. Wholesaling - also known as assigning the | | | | to take on a bad deal just to do a deal! On |
| contract - is when you simply put a property | | | | the "flip" side - no pun intended - many |
| under contract and sell the contract to | | | | people believe their improvements have |
| someone else, usually another investor. | | | | increased the value of the property above the |
| | | | original value they had estimated. This can |
| 2. Retailing - or rehabbing - is when you | | | | be VERY dangerous because you can wind up |
| actually buy the house you are going to flip, | | | | holding the property longer, making less |
| do the repairs, and then sell the house, | | | | money, and getting left with a bad taste in |
| usually to an end buyer, or homeowner. | | | | your mouth. For instance, they estimated the |
| | | | property would be worth $250,000 at the |
| On TV, they're showing the latter: | | | | beginning, but wanted to "test the market" at |
| buy-fix-sell. | | | | $275,000 for a few weeks. This is not |
| | | | recommended as the majority of traffic will |
| There is a lot of money to be made flipping | | | | come in the first 2 weeks that follow after |
| houses, but if you don't do it right, you can | | | | you first list the property for sale. |
| also LOSE a lot of money. What you don't see | | | | |
| on the television show is how they find their | | | | Step 5: Know Your Numbers |
| properties, how much it costs to acquire the | | | | |
| properties and, in most cases, the profit. | | | | Late night infomercials and shows like "Flip |
| It's funny how these programs very rarely | | | | This House" or "Flip That House" don't get |
| tell you HOW MUCH the person REALLY made from | | | | into the real details of the deal. You hear |
| the deal (not the gross profits, but what | | | | stories like this: investor buys the house |
| they put in the bank after all is said and | | | | for $200,000, put $25,000 worth the repairs |
| done). | | | | into the home and sell it for $250,000, |
| | | | putting $25,000 into their bank account. |
| So, how do you go about flipping homes (aka | | | | These don't take into account buyers closing |
| House Flipping) the RIGHT WAY - where you | | | | costs when you buy - holding costs including |
| make a good chunk of money in a relatively | | | | taxes, insurance, utilities and mortgage |
| short period of time? There are really only 7 | | | | payments - and selling costs when you finally |
| steps to flipping houses. And if you follow | | | | sell. |
| them, you will make money! | | | | |
| | | | In the real world, you must know: |
| Step 1: Flip A House Close to Your Home | | | | |
| | | | - Purchase costs: Upfront mortgage fees, |
| Look in your own backyard for deals. Too many | | | | attorneys fees, regular closings fees, title, |
| people look at properties that are too far | | | | survey, etc. |
| away for their first deal. I know from | | | | |
| firsthand experience. The first house I | | | | - Carrying costs: It's more than just the |
| flipped was 4 hours away and it took a lot | | | | repairs! When you're flipping real estate, |
| out of me. You want to be close enough to | | | | you're likely paying higher interest rates |
| supervise the job and/or to work the house at | | | | than on, let's say, a primary residence or |
| night and on the weekends. Plus, you'll | | | | second home. In addition to the repairs, |
| probably have a better idea of the values if | | | | you've got to consider monthly payments, |
| the property is in close proximity to where | | | | taxes, insurance, utilities, etc. |
| you live. | | | | |
| | | | - Selling costs: Again, you've got closing |
| Step 2: Find the Right House to Flip | | | | costs and possibly real estate commissions to |
| | | | consider. |
| Not every "deal" is really a deal - even if | | | | |
| you can get it cheap! Keep in mind the | | | | Step 6: Make A Plan... And Stick To It |
| location of the house you are flipping. Is it | | | | |
| in an area where people are buying? Or is it | | | | Create your "House Flipping" plan and stick |
| in an area dominated by rentals? Pay | | | | to it. Decide what you're going to do, when |
| attention to the condition. For your first | | | | you're going to do it, and how you're going |
| few deals, look for properties that need | | | | to do it before you even close on the |
| cosmetic repairs only. Cosmetic repairs | | | | property. Then, you're simply managing the |
| include paint, flooring, kitchen, | | | | project and tracking your progress - not |
| landscaping, etc. Save the houses that need | | | | reinventing the deal every other day. You'll |
| structural repair, roof repair, HVAC repair, | | | | know, at any given time, where you stand on |
| major plumbing, and major electric repair for | | | | the deal. You'll stay focused by keeping the |
| more seasoned investors. You could open up a | | | | bottom line in front of you all the time. |
| can of worms that you're not able to deal | | | | |
| with financially and from a time perspective. | | | | Step 7: Expect the Unexpected |
| | | | |
| Step 3: Have A Through "House Flipping" | | | | Any time you're flipping homes, you'll run |
| Inspection | | | | across SOMETHING that you simply didn't |
| | | | expect. Whether it's an issue that pops up 2 |
| A "House Flipping" inspection is slightly | | | | hours before closing that needs to be handled |
| different than your standard home inspection. | | | | or a big surprise when you peek behind the |
| You're going to ask your inspector to look | | | | drywall that you had to replace! You'll |
| thoroughly at the 5 major systems (plumbing, | | | | almost always run at least a little over |
| electric, roof, HVAC, and structure). The | | | | budget or hold it a little longer than you |
| cosmetic repairs will be less important since | | | | anticipated. But at the end of the day, |
| you're going to be renovating the home. | | | | you'll have the satisfaction of taken an ugly |
| Expect to change out ceiling fans, cabinetry, | | | | house and turned it around and depositing a |
| flooring, etc. These are the reasons you're | | | | healthy check in your bank account. Keep your |
| getting a great deal in the first place. You | | | | expectations in check and you're in for a big |
| don't want your inspector to "skip" the other | | | | pay day! |
| items, you just don't necessarily need to | | | | |