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Thinking of Flipping a House

29 September, 2015

Thinking of Flipping a HouseMany of us have watched those shows about flipping houses in hopes of selling the finished product for a nice gain.  With the housing market somewhat in recovery some people may be contemplating this the time to give house flipping a try. Here are a couple of thoughts on the matter as you consider your flip.

First, before you even select a house, establish your game plan and get your finances in order.  It is doubtful that you will be able to quit your job to focus on your new career because it is unlikely you can get any financing.  The days of almost limitless financing are gone, so you will probably have to have a substantial down payment (as in 20%) in order to purchase your flip.  Also, you must have some cash on hand to do the improvements.  Finally you must consider if the house does not sell, how long can you carry it?

Perhaps the biggest deal on a house flip is made on the front end.  If you get a great deal on a house, it will make it a lot easier to make money on the flip.  Conversely if you overpay for the house on the front end, it could be difficult to make money even if you do a great job on the flip itself.  Be willing to wait on the right house and if there is any doubt be ready to walk away.  Like the old saying goes, sometimes you have to kiss a log of frogs before you find a prince.  If you have any relationships in the mortgage or real estate field, use them.  Old friends or college buddies who work at banks or in real estate sometimes run across good deals and if they know you are interested they may pass on a tip.

It is also very important to know your market.  Typically more expensive homes are going to sit on the market longer.  If you want to flip in this arena, be prepared.  Let’s say you get a $400K home for $275K – a great deal.  You spend $30K to update it so you have roughly $300K in your investment.  If you try and sell it for $350K it could be there awhile because there are a lot less people who can afford a $350K than who can afford a $150K house. 

Also, you must watch your budget and be precise with purchases.  If you purchase a $75K home for a flip, do you really need granite counters in it?  In that price range you probably do not, unless you can find the material on sale.  There are certain high end items like countertops, lighting, and flooring that can be on sale at and really add to the character of a house to set it apart.  For people who try house flipping for the first time, it is probably going to make sense to do some work yourself.  Things like painting and installing lighting are easy to do and not especially time consuming.  Keep choices neutral to appeal to a while range of buyers.

Once your flip is complete, pricing it a few percent below the market can really help it move quicker.  Also, sometime neighborhoods in transition are good places to look for investment property, if it is at the right price. 

Flipping a house can be fun and profitable if handled correctly.  There are people out there flipping one to two houses a year who are supplementing their income this way.  If your goal is to become a full time house flipper, perhaps you can work into that, but it is best to take it slow on the front end.



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