Flipping Houses For a Living TV shows are all the rage these days. Viewers can’t seem to get enough of prosperous investors buying rundown properties and turning them into showplaces that sell for tidy profits – all in 30 to 45 minutes.
The truth is way more complicated. Making money flipping houses for a living, and good living at that, is certainly possible, but you have to know what you’re doing and have the time and money to do it. here are 5 tips to help you get started and 4 common mistakes to help you avoid the pitfalls.
1. Buy at the right price in the right neighborhood
Buying low and selling high are the first goals of a successful flipper. If you’re going to succeed in this business, you have to learn how to spot the rough gem in a good neighborhood and convince the seller to sell at below-market rates.
This isn’t easy because you will probably be competing with owner-occupant purchasers willing to buy and fix up the same house and then live in it themselves. Buying a house just because it’s cheap isn’t necessarily a great idea, especially if it’s in an area of high crime or a bad school district. What you’re looking for is the ugly duckling in the best possible neighborhood, and that’s not easy to find.
2. Have dependable access to cash
Buying and selling real estate can be an expensive business. The more cash you can put into a purchase, the less you have to borrow and the less interest you have to pay.
Traditional lenders will want 25% down to give you a good interest rate. You’ll pay a higher interest rate if you go with a short term loan from a hard money lender, but you won’t have to worry as much about your credit rating
3. Be sure your cost estimates are accurate
One of the surest ways to go underwater on a resell property is to underestimate how much it will cost to rehab it. It helps if you have a construction or real estate appraisal experience. Without that, you will need a good contractor you can trust and afford to thoroughly vet the property for you before you make an offer.
In addition to the cost of the rehabbing, you have to take into account the cost of marketing the property and the cost of holding on to it until it sells.
4. Don’t over-improve
You have to learn how to make cosmetic repairs that look great but don’t cost an arm and a leg. If the house you’re flipping is in a neighborhood where most of the houses have linoleum and laminate in the kitchen, there is no point in overspending on hardwoods and marble. You won’t get your money out of these kinds of upgrades. They will just cut into your profit margin.
Remember your goal: Have a good looking home and be able to offer it at the lowest price in a great neighborhood.
5. Rely on experts
Realtors can be well worth the cost of their commissions. Agents will know who the best potential purchasers are for your flip. They can help you navigate the negotiating process if you are new to the real estate field.
A good, reliable contractor is worth his weight in gold. A house that is not structurally sound is usually a bad deal at any price. Unless you have the expertise to do the job yourself, you are going to need an experienced professional who can inspect a prospective flip and tell you exactly how much it’s going to take to fix it.
Common Mistakes That Can Cost You Thousands
1. Lack of money
You have to have money to make money. If you lack the funds to adequately finance your flip operation, you won’t have the means to ride out a downturn in the market or unexpected reverses. Maxing out your credit cards to finance a real estate purchase is a bad idea. To succeed in this business you have to have enough capital to weather whatever the economy throws at you.
2. Lack of Time
You can’t buy, renovate, and sell a house overnight. It takes time to do the necessary research to find the right house, rehab, and market it. Keeping your day job in the beginning, while you work flipping houses on the side, is the best bet for a lot of beginning investors.
3. Lack of Skills
If you know your way around a screwdriver, a hammer, and nails you will be ahead of the game. If not, you’re going to have to rely on experts to do the work for you. Finding honest, reliable, professionals who show up on time and come in under budget and on time can be difficult. Every time you outsource, you are cutting into your profit margin.
4. Lack of Patience
Novice investors are often guilty of rushing to buy, hire cheap contractors, and enter into less than advantageous contracts because they don’t have confidence in their abilities. Experienced investors will pass on a deal that doesn’t look promising rather than goes down a financial rabbit hole
If you’ve considered all the risks, believe you have a nose for a good real estate deal and are ready to explore your financing options, Go Kapital is here to help. Instead of investing a ton of personal cash, contact the experts to find out how to maximize the financial opportunities they have to offer.