Television shows feature people flipping houses and making a tidy profit. As you watch these shows, it’s tempting to think that you can accomplish the same thing. After all, how hard can it be to buy a home, fix it up a bit, and then sell it for more?
The reality is a little more involved than what you see on TV. Before you get too excited about flipping a house, you should know what you are getting into.
- You’re an Investor
First of all, you need to realize that if you plan to flip a house, you’re not a homeowner. You’re an investor. That means when you make decisions about how to proceed, you need to make sure that you are looking at them from a standpoint of your return on investment. Your mindset needs to change as you tackle your home flipping project.
- It Costs Money to Fix Up a Home
Flipping a house isn’t about buying it and then selling it for more. You have to get it for a good price, and then fix it up. Fixing it up costs money. Look at the end game, and move backward from there. Pay attention to the market. How much would you be able to sell the home for if it were up to par? And what is the current cost?
Then, figure in the cost to fix up the home. In many cases, it’s common to spend as much as 30% of the purchase price to fix up a home before you flip it. Don’t assume you can just toss on a new coat of paint and make tens of thousands of dollars by flipping.
- You Probably Need Contractor Help
If you are handy and you know a lot about construction and fixing up houses, you can probably act as your general contractor and hire out other contractors for smaller jobs. However, if you aren’t sure, you might need to hire a general contractor and let them do some of the work.
Depending on the situation, you might need help with electrical and plumbing. However, remember that the more help you need, the greater the costs. Carefully look at the home before you buy to see how much of it you can do yourself. The more you can do on your own and still have it be a quality job, the bigger your profits.
- Location, Location, Location
Sure, you can get some homes in some neighborhoods for practically nothing. But it doesn’t matter how cheap you get the home if you can’t sell it because of its location. Proximity to shopping, good schools, amenities, and more matter when you flip a house. You need to realize that a home might seem like it’s worth a certain amount after you fix it up, but its location could mean that the market value is less than you thought — and that eats into your profit.
Pay attention to the location, and make sure you understand the implications of the home’s neighborhood. You may have to moderate expectations or make changes to your plans.
- Financing Might Cost You More
Finally, realize that financing a house flip can cost you. Since you aren’t a homeowner and you are an investor, the lender might decide to charge you a higher interest rate.
It is possible to find lenders willing to work with house flippers, though. You might be able to get financing that goes beyond the cost of the home so that you have some cash to use for the upgrades. However, that extra flexibility comes with a higher interest rate.
Make sure you understand the implications of financing your attempt to flip a house. Be ready to pay a little more and make sure to factor that into your costs. You can still make good money, but you have to be realistic.
If you decide that you like flipping houses, you can use the profits from your first flip to help fund the cost of upgrading your next flip. That will lead you to need less financing for your next home and could lead to potentially bigger profits. While you might not see huge returns from your first flip, as you do more of it, you can get a feel for the market, where the sweet spot is for you, and make better, more efficient decisions that lead to bigger profits down the road.