Five must-haves for flipping a house

There are things that every potential investor should have in place before even considering entering into a real estate transaction of this nature.

Glenn Curtis Investopedia.com

Many people assume that they can simply 1) buy a house. 2) apply a fresh coat of paint, 3) trim some bushes, and then 4) resell the home at a profit. Unfortunately, this process, called flipping is not that easy. After all, if it were, everyone would be doing it.

There are several skills and people that every potential investor/flipper should have in place before even considering entering into a real estate transaction of this nature. In this article well look at the top five must-haves youll need to succeed in this endeavor.

1. A Group of Experts

While a house flipper can certainly go it alone, it will certainly help to retain individuals that are familiar with the legal, accounting and construction ramifications of flipping houses.

Flippers typically work against the clock, so they must renovate a home on budget and then turn it around and sell it before the financing costs eat up their profits. In any case, a bevy of experts including a real estate agent. an attorney, a contractor or renovator, an accountant, a home inspector and an insurance agent can ensure that the work is completed in a timely and efficient manner.

2. A Handyman or Knack for Home Improvement

The house flippers that make the most money buying and selling homes tend to be handy people. That is, they have the ability to step in and lend a helping hand when time or money constraints kick in. Most flippers can do things like change a sink, install a countertop, do basic electrical or plumbing work, and/or shingle a roof.

Why is being handy so important? The obvious answer is that if you can do the work yourself, you wont have to pay someone to come in and do it. However, there are other advantages to being handy as well. For example, there are times when it will be impossible to get an electrician to install an attic fan on short notice. There are also times when a job must be completed without warning at the last second in order to obtain a certificate of occupancy. In these instances, having the ability to navigate your way around a tool box is very valuable.

3. A Good Lay of the Land

The buyer should know about the area in which they are buying property. A buyer should know, for example, what characteristics (size, number of rooms, type of home, etc.) are the most desirable in the area in which they are looking to buy. Equally important is knowing what houses in the general vicinity have sold for and if there is likely to be any future development in the community (such as a new school, condominium or shopping center) as this could affect supply and demand.

4. A Good Estimator

By definition, house flippers attempt to buy a property and then resell it at a profit in relatively short order. In order to do this, however, the flipper must typically make some structural and/or cosmetic changes to make the property more appealing to the next buyer.

If the flipper underestimates the costs associated with the refurbishment he or she may be exposed to large monetary losses. Therefore, a flipper should be familiar with construction materials (their use and their cost), as well as local construction codes, the cost of local labor and the time it should take to do a given job.

This is no small feat. In fact, it takes even the most seasoned construction professional many years before he or she is aware of all the nuances that exist. In any case, before becoming involved in flipping, be certain of your abilities to estimate a job in terms of both cost and time.

5. A Dose of Patience

One of the biggest obstacles to making money in the real estate market is that buyers tend to overpay for a given property.

Why do buyers overpay?

Typically, buyers become emotionally attached to a property or develop some other bond with it, which in turn forces them to enter into a contract on less than favorable terms.

However, savvy flippers have the ability to avoid emotional purchases, and the desire to find diamonds in the rough and properties on the cheap. They also understand that if they arent buying a property at a favorable price and with favorable terms, it makes sense to simply move on to greener pastures.

The bad news is that patience is a difficult virtue to teach and hone. In general, either you have it or youll lose a lot of money trying to learn it.

While quitting your job and becoming a full-time house flipper may sound like an attractive proposition, be sure that you have these five musts before investing in a real estate project.

Comment: Again, it sounds like fun, but it is only for those who know what they are doing. I know we have all seen the TV shows where people make lots of money and have a great time flipping houses. But remember, that is TV. Jack Bauer does not exist either. In the real world, it is very hard to do, even harder to do well. Within 2 blocks of my house there are two flips sitting half done, up for sale. The flippers ran out of money and are now trying to get out. There are other finished homes sitting unsold. And this is in the current crazy Toronto real estate market. Another problem is that there simply are not many diamonds in the rough out there. Sellers and their agents are smart, they know that if a house would sell for $400,000 with $50,000 in renovations, then they are going to list it for $350,000. Why would they give it away? Even if you get it for $330,000, you could go $10,000 over budget and now only have a $20,000 margin to work with. It the house sits, mortgage payments and taxes will eat into that. If it sits too long, you have to drop the price just to get rid of it and you end up losing money. I am more than happy to help people buy and sell property for a profit but that is the key for profit. I am not trying to be negative, I just do not want to see people blindly jump into something that is going to be painful later on.

Contact Laurin Jeffrey for more information    416-388-1960

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