Many first-time home flippers believe they can buy houses for pennies on the dollar, add a few light fixtures and some paint, then put the house on the market for top dollar. Unfortunately, flipping any house is not that easy. If it were, everyone would start flipping houses. However, by focusing your attention on four critical factors that make a house a good "flipper," you will be on your way to turning profit on every home you flip.
Do the Math
The financial calculations on a real estate investment never lie. Never underestimate the importance of time, effort and labor when you choose a house to flip. The hefty payday you see just because you bought your house below the seller's ask does not mean bigger pockets for you when it is time to list. Make sure you calculate the cost of carrying a loan on the home, whether it is short or long term. You must calculate all the maintenance costs, taxes and utilities while the home sits on the market. Many new house flippers fail to calculate all the costs associated with listing the home.
Know Your Home's Neighborhood/Location
You must start by asking yourself some significant questions regarding the neighborhood where you plan to begin your flipping journey. Ask yourself if the area's current market values are on the rise, or is it a transitional location with substantial price potential. Find out if the neighborhood is popular with middle-class families, retirees or millennials. By knowing your neighborhood demographic, you will know how to renovate the house and who to target when you put it on the market. If you know your neighborhoods demographic like the back of your hand, you will recognize the potential for both reward and risk.
Renovate With a Buyer in Mind
By knowing your neighborhood, you will know the type of renovations you should complete with a distinct buyer in mind. For example, if your neighborhood has plenty of good schools, your renovations should center on young families. If you plan on flipping a house in a trendy downtown neighborhood, you should renovate with millennials in mind. Most buyers demand an open living room and kitchen, so if your home is located in an older neighborhood, you may want to open up both spaces to appeal to those buyers.
Do Not Overprice Your Flip
Many novice house flippers fall in love with their renovation and list their homes based on emotional attachment. Unfortunately, emotions get in the way of actual numbers, and novice flippers wind up overpricing their homes. Every location in the country has a median price point, and to move your property fast, you must list your flip within that price point. The key to a successful flip is to list your finished product below market value. By listing your flip below the sales prices' of comparable homes in your neighborhood, you will receive multiple offers, which could potentially lead to an agreed upon selling price much that is much higher than your asking price.