You can make money flipping houses, but it takes a savvy investor, a keen eye, and well thought out plan to ensure a maximum return on your investment. TV reality shows and trendy YouTube videos will lead you to believe that flipping houses is a quick and easy way to turn a profit in real estate. Be prepared to roll up your sleeves and put in the work, so you can avoid costly mistakes with these tips for the highest profits.
House Flipping Defined:
The act of purchasing a home in a state of neglect and/or disrepair, fixing it up, and selling for a profit.
1. Start Small If you’re planning your first flip, we recommend starting with a property that needs only cosmetic updates. While the profits may be smaller for these properties, it will give you an opportunity to learn how to establish a budget, set realistic timetables, and work within those. A cosmetic flip does not require any major demolition but instead provides a facelift based on fresh paint, new light fixtures, new flooring, and other non-invasive updates.
2. Start renovations with a clear plan and budget A successful flip is one that achieves the maximum profit with the minimum necessary investment. This is best achieved by creating a clear plan of action and implementing that plan as quickly and cost-effectively as possible, without cutting corners. A clear action plan can help to mitigate unnecessary delays or expenses, however, it is always best to account for a minimum of 15% contingency in your budget to cover unexpected additional costs.
Your budget should also account for any resale expenses – these are the fees paid to your real estate agent, lawyer, and of course, home staging costs. When selling a home, it is essential to properly define each room and space in order to give potential buyers the best perspective of the house and to sell them on the experience of living there. Did you know? Vacant spaces are often viewed as smaller than they actually are by prospective buyers!
3. Don’t Get Personal When planning a fix-up for the purpose of resale, ensure the finishes and designs selected incorporate everyday function, while maintaining a neutral style that will appeal to your market. Avoid trendy design choices that may limit your buyer pool.
4. Avoid Using overly extravagant finishes We all enjoy a little glitz and glam, and so will your buyers, but be sure to check in with your budget often. Before beginning any renovations, research your neighbourhood and market and compare what similar houses are selling for. Regardless of how nice your updates are, there will be a market ceiling that dictates how high your buyers are willing to go (yes, even in today’s market). Most buyers are not easily impressed by brand-name window coverings, or top-of-the-line hardwood floors provided that they feel that the finishes and workmanship reflect quality. Take the time to find the best price, focus on value, and splurge cautiously.
5. Don’t overprice due to unplanned expenses Your budgeting errors are not your buyer’s concern. Team up with a qualified real estate agent that can assist you with a strategic pricing plan for the property and unload the property as quickly as possible so that you can free up capital to move on to the next venture.
6. Understanding your audience Keep in mind that you may not be the target buyer for your house, so what you like and dislike should not be a factor in most design decisions. This is important to all of the tips provided in determining what you should, and should not, do in terms of renovations. Take some time to identify what the buyer demographic is in your area, and evaluate what their wants and needs would be.
7. Hire trusted trades We have all heard nightmare stories of the contractor that disappeared part-way through a project or simply did not complete the job properly. Research your trades, ask for referrals, review previous work, and ensure that they are properly registered and insured before hiring them for any work.
The sheer volume of work, the time consumption, the sleepless nights and long days, and the planning needed in order to take a run-down property to resale condition are often glossed over on the reality shows, but the fun that they show is as real as it gets. Like all investments, house flipping presents several potential risks, so do your research, plan, and follow these tips to a successful house flip.