7 Tips for First Time House Flippers
Creating wealth through real estate can be a rewarding experience for those who can invest successfully in this particular asset class. Whether you are an aspiring solo entrepreneur or simply want to make extra cash on the side, real estate will offer you a great opportunity to fulfill your goal. Real estate investment ticket-sizes can vary from a few thousand dollars to a few billion.
For the layperson, focusing on smaller ticket-sized deals is the most feasible option. Buying a property, renovating it, and then putting it up for sale can ensure that your investment gets a timely entry and an exit.
However, buying a real estate asset and then selling it quickly (a process known as flipping) is not as easy as it sounds.
It requires a careful evaluation of the house/property, an understanding of the expenses that would go into improving the asset, and then knowing who to sell to and how to sell.
Not getting the basics right can mean a loss in spite of all the efforts which you put into the whole investing process.
The following tips will allow you to successfully flip your first real estate investment and earn a decent profit for your efforts.
#1: Start small
While you are excited and full of energy to start your new entrepreneurial venture, it is important to stay grounded. You don’t have to do a big transaction to impress yourself and your family. Focus on a single-family home or a small house. Keep a target budget in mind.
Usually, you can find something for $50,000 or less. A small property means less renovation, lower expenses for you, and an easier time selling the property.
Selling a $300,000 home can be a lot more challenging than selling a $60,000 property. Keep it small, keep it simple. After all, you have your entire life to progress towards larger deals.
#2: Location is king in real estate
In real estate, there is a saying made up of 3 words: Location, Location, Location! You can buy the most incredible house that is in great shape requiring very little renovation.
However, if it is located in a not-so-great neighborhood, then you are going to have a tough time selling it. Even if you do sell it, you might not even get the market price for the home because the “negative” location will probably shave off a chunk of the price.
The area in which the house is located is even more important than the condition of the house. As a house flipper, you have to think like the buyer who you will sell the house to.
That buyer is going to look at what the neighborhood streets are like and what the overall image of the neighborhood is like. If those things do not satisfy the buyer, then no matter how well you renovate the house, it will be a tough sell.
It is better to buy a crappy house in a great location than the other way around. So, as a first-time house flipper, do your homework on the quality of location before making any investment.
#3: Find the right sellers to make your first investment
Not all sellers are going to move as quickly as you need to if you plan to flip a house within a few months. You need to find sellers who are motivated enough and will sell the house to you at a reasonable price.
While you can get some great deals in a foreclosure event, it is not the only source of finding a quick and attractive deal.
You can focus on homes of couples that are getting divorced, homes that are dilapidated or in despair, or couples who may be expecting a baby.
These profiles of sellers tend to be willing to sell their homes faster than the average homeowner. Any person with an incentive to sell fast is what you are looking out for.
Another bonus would be the opportunity to partner with the seller. You can propose to share the profit of your flip-and-sell transaction with the seller in return for a lower price.
That way, you spend less when you purchase the property and the seller also becomes more likely to lower the price since he/she will get a cut from the eventual profit.
First-time home flippers tend to be short on initial capital and such an arrangement with a seller can kick-start the investment journey of a young entrepreneur.
#4: Know what to renovate and leave the rest
Knowing what to renovate is a balancing act. If you under-improve, then you run the risk of losing a sale opportunity. If you over-improve, then your cost goes up and eats into your returns. Hence, you need to have a clear idea of what all you will renovate before you even make an offer to buy the home.
One good way of finding this clarity is to be aware of the current trends in the market. Whether it is tankless water heaters, a new technology for HVAC (heating, ventilation, air-con), or hardwood floors, make sure you include those latest design/appliance options in your renovated home.
Concentrate on the kitchen and the bathrooms. Improvements in these rooms tend to pay off quite significantly when you sell.
Remember that you are renovating to enhance the value of your investment. You are not making improvements to make the ideal dream home. The ticket size of the home will also guide you as to what renovations are necessary and what ones aren’t.
For example, if you have to sell a million-dollar home, then all sorts of thrills and frills are needed to make the house look impressive. But, for an average family home that you want to sell for a few thousand dollars, your target audience will not expect to see any thrills and frills. So, renovate according to what and to whom you are going to sell.
#5: Delegate work
This skill is something that applies to management in general and not just real estate investing. But, for a first-time flipper, this skill is one of the most important. You do not want to do every single piece of work yourself.
Yes, there is the temptation to do the work yourself and save money on contractor fees but then the work quality and the finished product should also look impressive. That is what will ultimately sell the home.
You can try to do some painting and tiling work yourself, but let the experts do major works like wall additions or plumbing. Professionals will not only work faster than you but also ensure that your home inspection passes its test.
Here are some of the renovation works that you should not try to do yourself unless you really know what you are doing.
#6: Invest in some real estate education
As a first-timer in the industry, you may not be aware of the nuances, the industry jargon, and other knowledge about flipping properties. Hence, it is a good idea to educate yourself and learn from those who have already flipped houses successfully.
You can attend seminars on the topic, read books, take a course or two, and ideally work with someone who is flipping houses regularly. There are plenty of videos on YouTube as well which you can watch for free.
The goal is to learn how to participate in real estate auctions, how to find buyers, how to work with contractors, and how to manage your cash flows.
Another thing that new entrants or first-time flippers can do is join local real estate clubs. You can even look up national and regional real estate clubs on Facebook.
The idea is to surround yourself with experienced folks from whom you can learn. Attend meetings of any real estate investing clubs that you join and start building a network.
Become an active member of social media groups by posting questions and comments.
#7: Prepare yourself on a personal level
Flipping properties is a fast-paced job. It requires very good planning, time management, and organizational skills.
You have to conduct interviews with contractors, visit properties, talk to architects, get local permits, and secure funding. All of this needs to be done in a timely manner and will require you to plan out your schedule.
Always remember to keep some extra buffer for unexpected costs. Around 10-12% contingency is normally sufficient.
You do not want to do all the hard work and then not make a profit because of some last minute curve-ball.
Since you are new to this business, there is a high probability that something unexpected will show up at the 11th hour.
Lastly, learn to communicate well and treat everyone with respect. Your reputation can take you a long way or it can break you as well.
Work on being positive and optimistic and things will work out for you.
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