While the house flipping market is not as robust as it was in years past, flipping houses is still a good way to make money for those who know what to look for. Flipping entails buying a disadvantaged property, making the necessary renovations, and then reselling the home quickly at a profit. Evaluating a property to decide whether it should be flipped can be difficult. Robert Tweed, an experienced home flipper, shares his expertise with readers, helping them make good choices and maximize their investment.
How Much Should be Paid for a House to Flip?
When calculating how much you should pay, make sure that you subtract the amount of money you are going to pay for the house from a reasonable estimate of the sale price when you are finished with your renovation. Subtract all of the costs you expect to incur, including repairs, back taxes, insurance, property tax, utilities, and fees for any homeowners’ associations. Don’t overlook these extra costs when calculating how much you can pay for the home and estimating the profits you can make.
Ideally, you should follow the 70/30 rule when deciding how much to pay for a home. Pay 70 percent of the home’s final retail value (ARV) when you buy the home to be flipped, subtracting out the cost of repairs and renovations. For example, if your ARV is $150,000, you should pay $80,000 for the home. The calculations go as follows: $150,000 X 70 percent = $105,000. $105,000 minus $25,000 for the renovation costs equals $80,000.
Deciding Which Homes to Flip
When you are looking into flipping a home, there are important criteria you should follow. The first, listed above, is the price and the 70 percent rule. Don’t spend too much money on the house and expect to put in a large amount of money for repairs, or you may not break even on the sale. An experienced flipper rarely loses money on a sale because they are experienced in judging how many repairs a home needs and how expensive these repairs might be.
Here are some basic instructions on how to find the right house to flip.
Curb Appeal or Lack Thereof
When you are flipping a house, it is okay to buy a home which looks dreadful on the outside. A quick exterior renovation, like painting and changing the landscaping, will pay off greatly when you go to sell the house. Don’t be scared off by houses with an ugly exterior. As long as the construction is sound, you can make a good profit off the house.
One good rule to remember is to go to the best neighborhood and buy the worst home. Being in a good neighborhood means that your flip’s value won’t be damaged by homes around it. You will also make the neighbors happy by renovating the eyesore on their block. A good neighborhood has better schools and amenities and will attract the right buyers for you.
Stay Away from Quirky Houses
You may be tempted to flip an odd house that stands out in the neighborhood, but making this decision won’t be right for you. Flipping a peculiar house isn’t likely to bring you financial gain. More buyers will be turned off than excited by your flip.
Check the Neighborhood
You will want to make sure that there are no issues in the neighborhood that may cause your sale price to go down. Make sure that none of the neighbors have a home in disrepair. Check and see whether they have chickens or several dogs. Make sure that the fencing in the backyard is good enough to keep out unwanted visitors, human or otherwise.
These guidelines for home flippers will keep your sale profitable without causing you too many headaches. Most importantly, make sure that you are not paying retail price for the home in question. Keep the 70 percent rule in mind. Be prepared to make improvements to the interior and exterior of your flipped home. Finally, check the neighborhood and make sure there are no serious problems with any of the houses near you.
With these tips from Robert Tweed, you will have an easier time buying and selling your flipped home for a profit.