You should decide whether you plan to fix and flip the home to sell or to rent so that you can make improvements according to what tenants want in a rental property versus what buyers want in a forever home. When searching for an ideal property to flip, look out for lucrative remodel opportunities as well as red flags that could kill ROI.
One of the primary deterrents that ultimately decide the caliber of property one can invest in is, of course, the amount of capital available to invest in the project. While a certain house might be a great investment for one person, somebody with less capital may not want to take on that same house due to the amount and type of repairs the house needs.
There is a myriad of factors to take into thought when deciding not only if one is ready to invest in and flip a house, but where to invest. Consider these tips when deciding to flip a house for the first time.
Identify Types of Repairs The House Needs
Before one can even assess all the necessary repairs, it's essential to be able to distinguish between which repairs are mechanical fixes, and which ones are strictly cosmetic repairs.
Certain repairs such as those involving plumbing or electrical work can end up depleting funds at a much quicker rate compared to cosmetic repairs such as a new coat of paints, replacing the flooring, updating faucets, etc.
The types of houses one should aim to target are ones whose value can be brought up with simple, relatively low-cost cosmetic repairs. This means you should look to find spaces that could be improved significantly without an entire demolition. Knowing the differences between a complete rehab and a fixer-upper is critical.
For example, instead of investing in a house that needs the entire kitchen remodeled, instead, look for places that could get a whole new look by replacing smaller items. This could mean keeping the sink but adding in modern, functional kitchen faucets. These types of investments typically see more profit at the end of the entire process.
While hiring outside help is almost inevitable for those looking to flip a house, it's also important to remember that any issue that can't be remedied yourself can turn into a financial problem. Therefore, house flipping may not be a lucrative venture for all.
If one were to enter the process with a substantial level of capital, they could sometimes undertake these big repairs and still end up profiting. The general takeaway should be that when looking for a house to flip, be sure you can complete a large percentage of the repairs yourself to maximize profit or have a contractor lined up and budgeted into the project. These are critical considerations when purchasing a fixer-upper.
Be Mindful of Whom You're Selling To
As the flipper, it's important to get an accurate gauge on the average asking price for similar homes on the market that are of course in good condition. If it turns out that a potential buyer is on the lower end of the spectrum in terms of their ideal price point, it's up to the flipper to accommodate the renovations to the buyer.
Without critically considering the amount of money prospective buyers are willing to spend on the house upon completion, it is easy to fall in a pit of debt that will require an extraordinary amount of effort to dig out of.
Location, Location, Location
The importance of finding the right location cannot be understated. If a property is in a location that has had a lot of homes sit on the market, consider browsing some other locations. The selection process for the location should revolve around whether the market is or is soon to be strong.
A strong seller's market will indicate higher potential sale prices and profit. If you’re looking to make a profitable investment, finding a less desirable house in a more than desirable location should be the initial goal when location scouting.
Remind Yourself That This Is A Business Endeavor
One of the more common mistakes a first-time flipper will make is going overboard when it comes to improvements such as upgrades. One must be able to separate their vision of what their dream home would look like and what will sell on the market.
Pro tip from real estate expert and founder of Source Capital Funding; Sacha Ferrandi:
“A good starting point for first-time flippers would be a smaller place that requires primarily cosmetic repairs. This is to become more familiar with the process of flipping a house and what changes are more desirable to prospective buyers. Whatever lessons one learns on their first flip can potentially shape their strategy on future house-flipping projects”.
Fixer-upper investments have significant degrees of both risk and reward. If proper research is conducted and carried out properly, as well as possessing the time and money to do it, your investment is likely to be worth-while.
The strategies one implements differ depending on things such as if it is a buyer's or seller’s market, the type of house one is flipping, the location, etc.
There is no need to jump into a house flipping project that requires an enormous number of repairs, particularly mechanical repairs, especially if it is your first time flipping a house.
A wise investor will remind themselves that they undertook the project of flipping a house as strictly a business endeavor to profit. Whether you want to save up for your kid’s college fund, or maybe you just want a new Audi for yourself, the number one thing to be concerned about is the overall profit that is made from the flip.
Of course, it would be fun to be able to renovate everything catered to one's tastes. However, unless it helps bring up the profit, it shouldn't even be considered. Improving too many things, or even improving a couple of things to an unnecessary degree can lead to a significantly decreased return on their investment.
Other Helpful Real Estate Resources
Know the risks of real estate investing - become a real estate investor has significant allure. Who wouldn't want to make a lot of money buying and selling real estate right? There is a lot to investing and it is easy to make mistakes. Educate yourself on what you need to know.
What to do before buying a home - are you planning on buying your first property? If so, there are some sensible steps you should follow to make the process go a whole lot smoother. See some excellent home buying tips.
Helpful home buying advice - if you have never bought a house before there are always smart things to consider. Learn what you should and shouldn't be doing when purchasing your first property.
Should you get a home warranty - when purchasing a home, getting a warranty on the house might make sense. See everything you need to know about warranties.
Use these additional excellent resources to make the best home-buying decisions.
About the author: The article on what to know when flipping a house for the first time was written by Karina Mojica. Karina is a contributor editor for 365 Business Tips. From sunny Los Angeles; California State University Dominguez Hills she made her way back home to beautiful San Diego. She has a degree in Marketing, with experience in PR, and social media marketing.