If you’ve ever watched a home improvement show, you may have fantasized about making a quick $40,000 from flipping a home. While real estate investors may earn a great living from flipping fixer-uppers, it involves a lot of work and experience. If you’re a house-flipping newbie, here’s what you need to know before you flip your first house.
What Is An Investment Property?
A fixer-upper is an investment property. It’s purchased with the intention of making a return from rental income or the future sale of the home. The purchase of an investment property can be a long-term endeavor or a short-term venture – like flipping a home.
For investors who intend to flip a house, the process entails the purchase of a house, implementation of renovations and ideally the sale of the home for profit.
What To Look For When Selecting An Investment Property
When selecting an investment property to flip, you’ll want to search for a home that will appeal to many buyers.
Location, appropriate updates and repairs, and the ease of transition into a rental property are key factors that potential buyers will consider. Often, home buyers want to quickly purchase and create a turnkey property. This means they won’t want to consider small repairs such as chipping paint, worn carpets or out-of-date fixtures. They want properties that are move-in ready and need minimal work.
In order to provide buyers with their preferred level of convenience, consider a few of the tips below.
Before you partake in your home flipping adventure, you need to have a budget in place. Your budget will not only include the purchase price of the home but also the cost of all the renovations, required permits, financing expenses, inspection fees and any mandatory structural work.
It’s important to determine the projects that you can do yourself and the ones you’ll need to hire professionals to take care of. Addressing projects on your own will allow you to save money on the overall cost of renovations. You don’t want to put yourself in a financial situation where you end up upside down on the property. Don’t chose to hire out simple tasks that you can accomplish yourself.
In addition to establishing your budget, you’ll want to calculate your projected rate of return. Kemdi Anosike, real estate agent at Warburg Realty, states,“You have to make sure that your investment will be profitable. This will give you a vivid understanding of how much money is needed to ensure that the project is worth pursuit.”
After all, what’s the point of purchasing an investment property if you don’t turn a profit?
Location And Layout
Once you determine your budget, it’s time to select the perfect location for your property. One of the most important factors to consider when buying an investment property is the location. You don’t want to purchase a fixer-upper on a busy intersection or one that is too close to a landfill. Even houses in tip-top shape are hard to sell in undesirable locations. Make sure to examine the property’s surroundings to ensure you’ve selected a great location.
Additionally, you’ll want to focus on the home’s layout. If the investment property has a poor configuration that doesn’t flow, it may be a tough sell. You’ll also want to prioritize a home that is attractive to a variety of buyers. For example, homes with three bedrooms and more than one bathroom are suitable for potential buyers in a variety of situations. A home that provides this space could be appealing to anyone from families to retirees to young couples.
Condition Of The Property
In order to sell a fixer-upper, you’ll have to put in work. However, some repairs and issues are worse than others. When choosing your property, you’ll want to evaluate the easy fixes as well as the more expensive updates that a potential property will require.
For example, an easy fix may include painting the exterior of a home or updating lighting fixtures. On the flip side, a more expensive fixer-upper may require bigger projects like replacing plumbing or pouring concrete for a driveway.
It’s also wise to consult with a contractor before you buy a home. A contractor can give you insight into repairs you may have missed and provide estimates of the cost associated. This will help you eliminate unexpected expenses. It’s also vital that you’re transparent with your contractor concerning your budget and intention to DIY some details. Being honest with your contractor will help you establish a great working relationship.
Anosike adds.“Do not be afraid to express your concerns and fears. Set a professional tone from the beginning, regardless of if you are related to the contractor or not.” Developing a professional relationship early on will set the tone for any projects you complete in the future.
Best 5 Home Improvements To Flip A Fixer-Upper
You’re probably wondering what features you should focus on to achieve the highest return on your investment. After analyzing 1.9 million home sales between 2016 and 2017, a Zillow Group® found that including and featuring the updates below helped starter homes sell for 29% higher than the listed value.
· Solar panels:Solar panels are an attractive feature on a home due to the savings they provide on electric bills. Updating a home to include solar panels will appeal to buyers who are both environmentally and budget conscious.
· Craftsman home:The architectural design of an American craftsman home is one of the most popular styles in the United States. Flipping and marketing a home modeled in this design will be sure to draw plenty of potential buyers who are seeking exposed wooden structural elements and a large front porch.
· Coffered ceilings:Coffered ceilings create the illusion of space in a room by incorporating texture and visual variety. This feature catches a buyer’s eyes and is often a defining element that encourages them to take the leap and make an offer.
· Clawfoot tub:Clawfoot tubs are cheap and easy to install, and they provide a guaranteed a return on investment. Their current popularity ensures that they’ll appeal to a variety of buyers and give your investment property a “leg up” in the market.
· Midcentury modern:Another popular architectural design is midcentury modern. These homes are usually either ranch or split-level in design and made their initial appearance from 1935 – 1975. They’ve regained popularity in recent years and are currently one of the more sought-after styles of home.
Keep in mind, incorporating some of these features into your fixer-upper may not guarantee a profit, but they may appeal to a broader range of home buyers.
Key Mistakes That Can Make House Flipping A Flop
If you’re a first-time home flipper, you may run into a few hiccups along the way. If you haven’t prepared for issues or extra expenses, your house flipping adventure could turn into a flop. Here are a few other mistakes first-time flippers should avoid:
· Be sure to complete proper research. It’s important to do your homework and make sure you understand the local real estate market. Purchasing a property without completing your due diligence could end in disaster.
· Make sure you have enough cash to cover repairs or extra expenses. If you don’t have enough cash to afford additional expenses, your home flip could lead to a foreclosure.
· If you plan to invest with a partner, make sure you make a wise selection. You want to work with someone you trust and who’s on the same page as you.
· Hiring the wrong professionals could leave you worse off than you started. Vetting each professional before you hire them will help you make the right choice.
· Be sure to prepare for the unexpected. Home projects always have issues that arise. Being prepared will help you stay calm and maximize your profit.
The Bottom Line
Flipping a home is a more intense process than just making a purchase and putting in some work. Having an accurate understanding of the process includes being aware of the finances of the situation, making the most cost-effective renovationsand knowing what buyers are looking for.
Ensuring that you take the time to learn the ins and outs will enable you to embark on your flipping journey with a better chance of success. If you’re ready to take the leap and start flipping homes, be smart about it so that the outcome is more likely to be rewarding, profitable and as stress-free as possible.
If you’ve ever flipped a home, what’s the best piece of advice given to you? We want to hear from you! Please leave your answers in the comments below.