House flipping has become an increasingly popular vocation for many across the US. The activity is estimated to generate up to $650 billion in 2024, with over 79,000 homes flipped during the second quarter alone.
Popular television shows have also highlighted the process of flipping houses, making it appear attractive to more budding entrepreneurs. However, because real estate can be a volatile market, flipping houses for huge profits isn’t as easy as what some shows portray.
Certain steps must be followed to ensure profitable flipping. Although they in no way guarantee profits, following them will likely lead to higher levels of success and more money rolling in.
Gain Knowledge and Do Research
Understanding the real estate market in your area is the most essential factor in making a profit. This can be achieved through intensive research into the local and wider real estate markets, which could impact local buying and selling.
This research should include identifying regions experiencing high demand for homes, determining which areas may soon experience market growth, and analyzing recent sales data and trends. This data should include information such as asking and selling prices and can commonly be found online.
Alongside research into the market, proper research should be done into any regulatory requirements, such as zoning laws and building codes, in the area you plan on working in. Knowing these can ensure you personally know that your flip meets all requirements, even if you’re using a contractor who should do this.
Find the Right Property
Once you’ve planned how much you want to spend and earn, the next step is finding a property. Just like when choosing a house for yourself, location is everything. Find one near amenities like schools, stores, and entertainment venues. While certain amenities, such as casinos, are not essential because gamblers can access them online via casinos.com, having them nearby can be appealing to some buyers.
After selecting a location, search for distressed properties that may require cosmetic enhancements that can quickly be achieved without breaking the bank. When reviewing a property, it is undeniably important to ensure that no major structural, plumbing, or electrical overhauls are required.
To identify these, do thorough due diligence by inspecting the property. A good rule to use is the ‘70% Rule.’ This stipulates that your purchase price should not exceed 70% of the property’s after-repair value (ARV) minus the renovation costs.
Plan Your Investment Properly and Don’t Over-Invest
A notable concern to any flip project is overinvesting in a property, which occurs when you spend more money on renovating the house than you can make when reselling it to potential buyers.
To avoid this, proper investment plans should be in place for any property you plan on flipping. When developing these plans, set out a budget for the property you want, a budget for renovations, how you plan on financing the project, and how much money you’re hoping to receive in return.
During this step, take care to include any additional costs apart from the property purchase and renovation. These include closing costs, holding costs (such as insurance, taxes, and utilities), marketing costs (such as realtor fees and staging), and selling costs. Each of these can significantly decrease your profit if not correctly factored in.
Stage and Sell
Once your property has been fully renovated to your requirements and you’re ready to sell, don’t skimp on spending extra on staging. Staging is one of the most valuable costs incurred when trying to flip a house because it can help you sell it much faster.
According to 81% of buyers’ agents, staged homes sell more quickly and commonly fetch a higher selling price than empty homes. To help you stage your flip, there are many professional staging companies that will fully furnish the house for you for a fee.
Once you’ve received an offer, don’t consider the house sold until the final deal has gone through and been approved. Until this occurs, continue marketing the house online and allowing potential buyers to view it. However, notify these prospective buyers that an offer has already been accepted and is in the process of having subjects (if there are any) removed.
Final Tips
Although flipping houses isn’t an exact science and is subject to market fluctuations, buyer requirements, and a degree of luck, the above steps can help make it a profitable enterprise. However, there are some additional tips that can help make the process easier.
Negotiate
One of the most important skills in flipping houses is the art of negotiation. This can be used to negotiate the purchase price of a property you plan on flipping, the renovation cost with a contractor, and even the cost of some materials, depending on your supplier. Always pushing for the best price can greatly reduce your costs and inflate your profits.
Teamwork
If you plan to regularly flip houses in the same area, consider building a team consisting of regular contractors, realtors, attorneys, and inspectors. Working with the same companies and people often can help you feel more comfortable stepping back from some renovations and can help you negotiate better prices.
Organization
The final tip to profitable flipping is to stay organized. Ensure proper recording of all expenses and timelines so that you know where you’re standing at a moment’s notice. Doing so will help you identify any over-expenditures before they happen and ensure you don’t inadvertently eat into your profits.
Published by HOLR Magazine.