Are you thinking about flipping a house? You’ve probably seen some of those house flipping shows on TV that make flipping a property sound great and that it’s all going to be all candy canes and unicorns… Spoiler Alert…it’s not candy canes and I have yet to run into a unicorn(I did end up with a surprise donkey one time, but that’s another story…).
But yes, when done correctly and carefully, flipping a house can be a great tool to make a chunk of cash that you can use to help fuel your real estate business or supplement your income from your day job. Today lets discuss five things that I wish I had known before flipping a property.
Of course, you need to think about how you are going to pay for the property and the rehab. You have probably already thought about all the wonderful things you are going to do to change the property.
There are some things that are not so obvious and for me, a few of the things that I wish I had put a lot more thought into before starting the process, are these right here:
What my holding costs are going to be, when to stop making improvements, the amount of time that I’ll need to put into the project, how am I going to sell the property, and what is the best thing to do with the profits.
Real estate holding costs are the costs an owner must pay on an investment property during the time they own it. We tend to focus on the cost to buy the asset and how much the rehab costs will be, but what are all the other costs associated with owning a property?
You need to be aware of and make sure you factor into your numbers things like the interest that you’re paying if you borrowed the money, property taxes you’re going to be paying while you own the property, the insurance costs for the property, and your utility bills.
All those bills are going to continue to run while you rehab the property, show the property to potential buyers, and while you are waiting for the property to close once you’ve found a buyer. When you add all of those things up, it can really be a big number that eats into your bottom line.
So, keep those numbers in mind and make sure you factor them into your budget and you can get a better estimate of your costs before you start. There are usually always surprises when you flip a house, and you don’t want your holding costs to be one of them.
Don’t Over Rehab
The second thing to know is when to stop improving the house. You make a plan for what to do to the house, you start working on the house, and you fixed this one thing over here…Well, now there’s something else you want to fix…And then something else.
There’s always going to be something else! You’re going to say things like, “Ah, but we could do this here.” Or, “Man, it would be really nice if this happened over there.” It’s a great idea, sure, but there’s always going to be one more thing. You really need to have a good plan going in and do your best to stick to that plan.
Yes, there’s going to be surprises that you find that just need to be fixed, especially if its a safety issue or something along those lines. Those are things you’ll have to spend money on that are outside of your renovation plan. But as far as just adding something else to make it that little bit prettier, you really want to ask yourself, “Is it worth it?” Is it worth the time? Is it worth the cost?
Are you going to see that dollar-for-dollar return for fixing that extra thing or is it really going to help you sell your house? You’ll want to do some research on the things that add the most value to a house and make sure that’s where you put your money.
You always want to make sure that you are going to get back more than you put in. Some things that you may want to focus on are the kitchen, the bathrooms, and curb appeal.
Also, one thing that I think people don’t always account for is how much time you need to be there. Especially is it’s one of your first projects, you need to be on-site or somebody on your team needs to be on site. At the very least, somebody should be checking on the project several times a week making sure everything is okay and making sure that people are there working on it.
Make sure that the contractors know that you’re going to be present so that they make sure that they’re present at the project and continuing to work.
It is best to check on the project every day, that’s not always possible, but it is possible to maintain good communication with anyone working on your house and consistently stopping by to get a first-hand look at the progress.
If you are not present to make sure things are going as planned then it’s very possible that no one else is going to be making sure as well. I have seen it more than once where a property was left unattended and people with bad intentions took advantage of that and that’s obviously not something that you need while you’re working on your project.
Selling the Property
Now that you have finished your project, what is the best way to go about selling the property?
A lot of people think that it is a good idea to sell the property “For Sale By Owner”, and while this can be a good strategy and save you some money on commissions. You need to ask yourself if you are the best person to market and sell this property.
Do you have any experience with selling a home? Are you comfortable with all the contracts and the negotiation process? Do you have the time to market and show the property as needed?
Sometime what you would save in commissions can be made up by hiring the right realtor to list, market, and sell your property for the best price.
If you choose to hire a realtor, please view it as a business transaction and that you are hiring this person to do a specific job for you. Everyone has a cousin or a friend from work that is a realtor or “does real estate on the side”, but is this the best person to hire for your business??
Maybe and maybe not…I would only hire someone who has a proven track record of selling your type of property and is committed to getting you the very best result.
What To Do With the Money
Great news! You have sold the property and now you have a healthy profit to show for all your hard work!
Have you thought about what you are going to do with the money? I bet you have…but, have you thought about what would be the best thing for your house flipping business?
I’m not saying that you shouldn’t celebrate and treat yourself to a little something nice, maybe a nice dinner or splurge on a gift for yourself, after all, you’ve earned it.
I am saying that if you want to make real estate investing a successful business then you should consider reinvesting that money back into your business.
Should you reinvest the profit back into flipping another house? Could you use it for a down payment on a long-term rental property? Do you need to up your marketing so that you can locate more investment properties faster?
There is probably no one right answer but this is a question that you should ask yourself and consider before you have a lump sum of money burning a hole in your pocket.
So, five things I wish I knew before flipping a house:
Check out the holding costs, know when to stop improving the house and stick with your plan, really make sure that you have a good grasp on how much time you need to be there so you can plan to be present in order to give you the best chance of being successful, how are you going to sell the property once it is completed, and what is the best way to spend your profits.
Flipping properties for profit is not easy and you will never be able to think of everything before you start a project, but you can try to think ahead and plan out for most of the obvious and not so obvious obstacles that can get in your way.
With a good plan and a lot of grit, I’m confident that you can become a successful real estate investor. I hope these thoughts will help you with your future investments. Happy investing!
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