Questions to Ask Before Selecting Your Next Flip property
Flipping houses can be a path to wealth if you play your cards right, but it can also result in money pits and small returns if you don't know what you're doing. To make sure that you're maximizing your investment and using your time wisely, it helps to spend some time considering what you're getting yourself into.
If you've never flipped a house before, but the thought of being your own boss and managing your own destiny is enticing, then you'll need to educate yourself about what the flipping process looks like and how you make your money back in a timely manner. So before you get ready to flip your first house, make sure you're considering (and finding answers to) all of the following questions.
1. How is the local market doing?
The levels of recovery following the downturn vary greatly from place to place and even by neighborhood. Take advantage of data that is available to get a clear picture of the current state of the market, as well as what factors might be at play in the months and years to come. Some specific questions related to market would be:
What prices are homes selling for in the neighborhood surrounding the property?
·How many properties are for sale in the area?
·How long are homes taking to sell?
·How many are foreclosures or short sales?
·Have there been other flips nearby?
·Are there significant development projects in the area that might attract new residents?
2. How much would you need to invest in the property?
Get down to specifics about the costs and time involved to bring the particular property up to snuff. Will the work be primarily cosmetic, or are more extensive structural and systems renovations needed? Get guidance from a professional inspector to identify issues, and then get quotes on the jobs you will need to contract out. Consider the added time that will be involved as well, since holding costs mean that time is money.
3. Do you have the capital you'll need?
Don't go into a flip until you've crunched the numbers. Repairs and renovations can be very costly, and they won't be the only expense. You'll likely be paying contractors for part of the work, and there are also utilities, insurance and taxes on the property to consider. Itemize these to the penny to create a realistic budget for yourself.
4. What Are The Biggest Risks Associated With Flipping A House?
Just like any other investment, flipping a house poses certain financial risks, as there are no guarantees in terms of how much you'll earn back on any given property.
There may also be certain physical risks, depending on the home's condition, and this is why hiring an inspector is such a crucial step. Remember, the more you know about a property before you invest in it, the less likely you are to encounter physical or financial threats.
5. Can I Invest the Time?
Fixing and flipping homes requires a solid time investment. You will need to put in some man hours finding the best property. Then, you will need to invest some time in the rehab - multiple visits to the site may be required, plus your attention will be needed to make crucial decisions throughout the rehab process. If you plan on doing some or all of the rehab yourself, plan on putting that social life on hold and calling in sick to your day job for a couple of months. As we mentioned before, the key to fix-and-flip success is to complete the rehab as quickly as possible.
6. Do I Have the Motivation?
Just as important as having REI skills is having the motivation to see a deal through successfully. The wonderful thing about fix-and-flip investments is the more you put into them, the more you get out of them. Namely, the more time you spend researching real estate investment tips, learning negotiation tactics, gathering data on real estate hot spots, etc., the more prepared and successful you will be with your first deal. There will also be many obstacles that will pop up throughout your fix-and-flip process, and having the motivation to solve problems as quickly as they come up, to be on top of paperwork submissions and work hard every day to find a property and execute its rehab is worth its weight in gold.
7. What Do You Need To Flip A House?
Predetermined budget and readily-accessible funds
First and foremost, you must know how much money you have to work with for your
project. This will help you decide not only which neighborhoods and properties to
consider, but also what types of materials you can use as you renovate the home.
·Real estate agent and real estate attorney
Talking with an experienced Realtor who understands your needs can help expedite the process of finding your ideal investment property. Of course, you'll also want to work with a Realtor after work is complete, when you're ready to put the home back on the market.
On a related note, whenever you're buying or selling property, it's always wise to hire an attorney who can make sure your best interests are protected before you enter into a contract.
·Licensed home inspector
When you purchase your investment property, make your offer contingent on a
satisfactory inspection. This will protect you from having to commit to a buying a house that may have severe (and expensive) code violations or property damage.
Additionally, you can have the house inspected once more after renovations are
completed, to ensure the property is safe and ready for its new occupants. Since
inspection contingencies are fairly common in most places, this also helps to lessen the chances of buyers rescinding their offers.
·General contractor, licensed plumber, licensed electrician, and landscapers
Even if you intend to complete the majority of the renovations and updates yourself, it's always helpful to have the names and contact information for experienced professionals available, in case of any emergencies.
·Interior designer/ home stager
Lastly, when it comes time to put the home on the market, you'll want to make sure the property looks its absolute best, and that may require working with a home stager or interior designer.
8. Do You Have To Pay Cash To Flip A House?
While you don't need to pay cash to flip a house, it's worth noting that your financing
options as an investor are much different from mortgaging a home as an owner-
occupant. If you're considering flipping a house and do not have sufficient cash on hand, make
sure you thoroughly research lending programs applicable to you, and don't be afraid to discuss your options with your accountant as well.