According to recent housing market statistics, house flipping (the practice of buying an under-priced home with the purpose of re-selling it for a profit) is on the rise once again. As the market bounces back from the drop in home values and bankruptcy of the nation’s largest mortgage companies, speculators are feeling more confident about investing in homes.
While some like to buy up bank-owned properties and flip them over quickly with little personal involvement, others prefer to buy homes that need some TLC and increase their market value over a longer period to maximize their profit.
Whatever your goals in attempting to flip a house, you’ll need to understand a few important tips for success.
5 Tips for House Flipping Success
Tip #1: Realize it’ll probably be a huge investment of time and resources, and prepare accordingly.
In perfect market conditions, some real estate investors are able to flip a house in as little as a few months, but this is usually not the case. Realistically, you may be investing in a house for a year or more. Carefully consider the costs of the time you’ll miss from work, the mortgage, utilities and upkeep of the house, and the supplies and hired labor you’ll need to complete improvements.
Often, there will be unexpected delays due to contractors, inspections, permits, and other red tape. If you over-estimate your timescale for completing and selling the house, you’ll be more prepared if things go slowly.
Tip #2: Thoroughly research the housing market in your area.
The surest guarantee of successful house flipping is knowing what you’re doing. You don’t have to be a real estate agent or a professional, but you will need to do your homework. Research your market, not only for good investment opportunities, but also for trends — such as what size and type of house is most likely to sell in your area. This will help you determine which house to purchase and what updates or changes to make.
Stick to a classic home with modern improvements, but avoid overly unique or customized homes or renovations. The goal is to make your investment property as appealing as possible so that it sells quickly and at full value.
Tip #3: Consider living in the house you’re flipping.
Paying for two mortgages while you’re investing in a house flip can be extremely difficult. If you expect your flip to take more than six months, you should consider living in the house and renting out your own home. Not only will your living expenses be cheaper, but the rental income will help you pay the extra mortgage or renovation expenses.
If you live in the house for two years, you can list the house as your main residence so that when it sells, the profit will be tax-free. If you stay at least one year, the capital gains tax drops to the long-term investment rate, and you’ll pay significantly less.
Tip #4: High-ball your estimated costs by at least 20%.
A projected budget for your house flipping investment is essential, but you’re almost sure to go over it. Over-estimating your budget will create a safety net that allows for more of the unexpected — without unnecessary financial stress.
Tip #5: Sell it yourself.
Real estate agents can make up to $50,000 on each house they sell. If you have the skills and market knowledge, try selling it yourself. This is referred to as FSBO (for sale by owner). eBay and other real estate auction sites charge fees for listing homes, but the expense is nowhere near what you’ll spend for an agent. If you’re not successful, you can always fall back on hiring an agent.
The keys to making a profit by flipping houses are knowledge, research, careful planning, and patience. Those who flip successfully aren’t merely lucky speculators — they’re experience-tested investors who are money-saavy and willing to go the distance.
Have you had success with flipping houses?