Analyze how much house you can afford and how much you can afford to lose on any deal. Experienced flippers follow the 70% rule when analyzing how much they’re willing to pay for a house. This rule states that investors should pay no more than 70% of the after repair value (ARV) of a property minus the cost of the repairs needed. Let’s say a home’s ARV (or value after necessary repairs) is $200,000, and it needs $30,000 in repairs. The 70% rule states that you should pay no more than $110,000 for this home: $200,000 (ARV) x 0.70 = $140,000 – $30,000 (repairs) = $110,000 This rule is a good guide to follow when you first get into house flipping as it can help you avoid overpaying for a home.
Next, become an expert on home financing options. Will you buy a house with cash? Will you apply for a home mortgage loan through a company like Credible* or take out a HELOC? Make sure you understand the ins and outs of home financing before you apply for a loan or make an offer on a house. This will allow you to make the best decision for your circumstances.
First, research your local real estate market. Where do people want to live right now? What kind of house do people want to buy right now? Don’t speculate about up-and-coming neighborhoods. Remember, you want this house sold fast.
If you are using the services of a Realtor when selling your home they will handle this for you but make sure that your home is everywhere the buyer’s eyeballs are including Zillow, Trulia, Realtor.com, etc… The goal in marketing your flip is to make sure as many people see and know about the house for sale as possible, which will go along way in getting the home sold quickly and for top dollar.
Make sure you use high quality and professional pictures for the marketing of the home that shows the home in the best possible light. Remember, most buyers start their home search on the internet. And oftentimes the first showing of your house is actually taking place online with the photos of the home. So if the home doesn’t show well online it can hinder the amount of interest in the property.
Many first-time house flippers will usually try and sell their house flip as an FSBO or For Sale By Owner due to the high cost of real estate commissions. Because a typical 6% real estate commission on the sale of the home is certainly a tough pill to swallow. However, you might be surprised to learn that FSBO’s typically sell for less money compared to agent-assisted home sales. According to the National Association of Realtors FSBO homes sold for the median sale price of $200,000 while the median agent-assisted home sale sold for $264,900. Meaning that any money you might have saved by not using a real estate agent you more than likely lost anyway because the house didn’t sell for as much money.
While you certainly want to maximize your profit when flipping houses. The list price of the home needs to be based on actual comps in the neighborhood. Overpricing a home usually leads to long days on the market and additional carrying costs for the home. Think about the opportunity cost of overpricing your home if it takes the better part of a year to sell. By pricing the home correctly and selling quickly you could have freed up the capital sooner and bought and sold another flip in the amount of time you were waiting for the first house to sell.
When flipping houses speed is the name of the game.
As a flipper in the Midwest, we do the majority of the work on our house flips ourselves, due to the tight profit margins. With that being said though, when there are jobs best left to professionals we do hire that work out such as electrical work, roof work, HVAC work, etc… To make sure the job is done right and the first time.
The worst thing you can do when rehabbing a property is to try and wing it. Having a plan and a detailed budget will help keep you on track, allow you to hit your deadlines, and keep the costs under control.
While it might be tempting to buy a really rundown house that needs to be gutted and redone because of the super cheap price. It’s best to steer clear of these kinds of flips until you become more confident in your flipping ability and more seasoned with rehabbing houses. So when looking for your first few flips, focus on houses that need light updating and paint and carpet to avoid getting overwhelmed and in over your head.