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Before you go putting all your hard-earned money down in front of some seller that you just met a week ago, there are a handful of things you absolutely “must do” first. Granted, this research may take you a bit of work and a few extra hours, but the money this research will save you when flipping a house will be well worth the extra time and effort.
Research the neighborhood:
Before purchasing a home you always want to know everything you can find out about the neighborhood/subdivision where you will be purchasing the home. Find out things like how old is the neighborhood? Older neighborhoods generally make better flipping targets because the area is established, most of the homes are occupied, and it will likely be a better area to find a house with hidden value.
Find out what homes have sold recently in the neighborhood, how long each was on the market, and what the homes sold for relative to their asking price. When flipping real estate, an investor may think he has found a real deal, until he looks at the neighborhood as a whole and sees that nothing has sold in 3 months! Flipping a house is all about getting in, making your improvements and getting out as soon as possible. Each day you own the house you are paying interest on your mortgage/line of credit. This interest will quickly eat into your bottom line if not monitored carefully. You can usually pull recent sales information from the County website, or consult a local realtor and ask for a CMA (Comparitive Market Analysis)
If you can, find out why the seller is selling:
This may not always be possible, but if you can find out, it usually is to your advantage to know why the seller is listing the home for sale. There are certain cases where you may not want to invest in a particular flip. For example, if you were to discover that the seller is also a real estate investor and had just put $25,000 into the property for new bathrooms and kitchen upfits, and the property has been on the market for 7 months with no offers, then you may want to shy away from trying to flip a house like this. Either the buyer before you made alot of mistakes in trying to flip this house, or the home is priced above what the market will bear. Either way, you would want to steer clear.
Get estimates on the major projects you have planned for the home:
If you have done the above and still feel that this home is a good real estate flipping candidate, then ask the seller if you can take one afternoon and bring in a few contractors for some rough estimates of renovation costs. Or if you are working with a real estate agent, schedule another showing and have your contractors come along with you. These estimates wont be “airtight” but they will give you a general idea of what you may have to spend in order to make the home appealing for a new buyer.
Total your numbers to see if it “makes sense”:
Then put together all your numbers to find out whether or not this property is worth flipping to you. Take all your expected costs for repairs, demolition, and renovations as well as any loan costs and add this to the purchase price. Then take that total from the total you expect to sell the home for minus realtors commissions. This is your total profit (hopefully).
When flipping real estate, not only do you need to concern yourself with the profit, after the sale, but you also need to consider your time involved as well. If you put 50 hrs a week for 6 weeks into the project and your profit is $6,500 on the sale, then you have just paid yourself $21.67 an hour for flipping a house. This may or may not be worth your time. It’s good to figure this out before the property is purchased so that you have an idea of what to expect and how to budget your time accordingly.
These are not the only things to think about ahead of time:
They are merely, a few of the most important items to consider when flipping real estate. Other good advice is speaking with someone already in the real estate flipping business. Learning from others mistakes is one of the quickest ways to accomplish your goals with little or no experience.
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