House flipping is one of those things that can get you a sale and some extra money in the pocket. It can increase the value of a property, the neighbourhood and help the real estate business on the whole. But before you get into that, there’s a lot of research to be done. House flipping can be very rewarding but understanding its risks and the ways you can avoid losing money is important. Here are five tips you could use if this is your real estate calling.
1. Numbers Are Important
This is a mantra that you must keep repeating if you are on the verge of choosing a house to flip. Take a good look at the neighborhood and the realty rates of the houses there. Next, understand what ARV means. The After Repair Value of the house is what it’s worth after you’re done tinkering with it and giving it a makeover. This is the actual value that you will probably sell the property at.
Remember that the investment you make in terms of buying the house and its makeover should not be more that 70 percent of the ARV. This is a good formula to follow while you choose a property. If the investment is more than the 70 percent mark, then you could end up making very less or no money at all. So remember the number and hold it close while you make your decision.
2. Closing The Deal
Everyone wants the perfect deal. But, in order to get there, you’ll have to do the numbers in your head long before you strike a deal. Think about how much you will be investing in every part of the house and how much the ARV will be afterwards. Let’s look at this with an example.
If you think your property’s ARV is $240,000 and you had purchased it for $120,00 or less, and the refurbishing took about $40,000, that would make a great deal. In the $80,000 that is left, some part of it would go towards other expenses in the business but the rest, about $30-40k is all yours. And, if you could achieve at least four or five houses a year, that’s a great amount of money.
3. The Local Market
Before getting into house flipping, understand the neighbourhood that you’ll be working at. What’s the area like, what stores are closeby, how are the people and how often do houses come on the market. More than that, think about whether the area’s housing prices are rising, or whether the neighbourhood is an old residential area or, one that has crowds who move a lot. These are important questions to ask yourself before you think about investing on a house.
What kind of people live in this area and what demographic will you be targeting when you plan on selling the house? How quickly will the house sell when it’s on the market? Asking these questions, before you invest in a house, will help you decide the price at which to buy and sell and the amount of profit you will eventually make.
4. Target Audience
The moment you choose the house, study the neighbourhood and are convinced about flipping it, think about who you are going to sell this to. The price doesn’t matter but the investment on the flipping will depend on what kind of people will end up in the house. If your property is rural, the person likely to buy it is a ranch hand or a farm owner. So, design the house rustically, making sure there’s lots of open space at the back.
If you are in a residential neighbourhood near a school, then people with children are going to want the home. Design enough bedrooms and bathrooms to accommodate small or big families, depending on the size of the house. An extra bedroom in the attic or an open kitchen with a family lounge are things that could be great selling points for the property. If it’s something that is for elderly couples, make sure the house is elder-proof, and add some extra care, like handles and skid-free flooring in the bathrooms.
These little changes will make sure the house sells fast and you get the profit you wanted. It will also make the clients think that they have been offered a good deal. But here’s something to keep in mind. Just because you made these little adjustments for your clients, don’t overprice your property. That means it’s going to be on your hands for a longer time and may not even sell for that price, in the end. Instead, stick to the 70 percent formula as much as possible.
5. Show it off
Well, you’ve worked hard on the property and now that it’s on the market, it’s time to show it off. Make a video tour of it, highlight before and after pictures, and put it up on social media, where your target audience is bound to notice it. If you’ve done any work on the roof, the windows, remodelled the kitchen or created an extra bedroom, let people know. And when you create a file for your clients, make sure it’s packed with details.
Sometimes, with so much done, it’s tempting to price the property a notch higher than the comps in the neighborhood. Like, if the house was in shambles and you really had to go through a lot to fix it.
Clients Won’t See it Like You
But, understand that overpricing the property because you put in a lot of effort isn’t going to fly with most homebuyers. The client simply isn’t going to see your point. What they will do is look at other houses in the same area that are going for a lesser price and forget all about you. So go back, once more, to the market formula, review it in your mind and go ahead and get flipping!