Flipping houses can be a profitable business. After all, there are people on HGTV and A&E with their own shows making it look easy, right. Well maybe.
The basic strategy for flipping houses is to buy a distressed property at a price that is discounted far less that what it would take to cure the distress. In other words, if a house is worth $200,000 in top condition, and needs $30,000 of work, you had better be buying it for way less than $170,000. Otherwise, no profits.
Foreclosures and short sales are prime candidates for flipping. The odds that you will find an individual who has a home that needs work and is willing to part with it for less than market value, minus the cost of the necessary work, is slim. If you do find such an individual, I would hope that you would have enough compassion to make sure this person isn’t making a tragic financial mistake.
The exception to finding a good house for flipping from an individual is a short sale. A short sale will typically go for as much as 20% below market value. And many times there is not much needed in the way of repairs or improvements alongside the haitch conveyancing melbourne. The homeowner cannot pay their mortgage, so they are simply trying to avoid foreclosure. When it comes to flipping houses that are purchased as short sales, you will typically have 20% max margin to play with.
Foreclosures on the other hand are likely to be the best source of profits for someone who is interested in flipping houses. And as is usually the case, the most profit comes from taking the most risk. Part of the bank’s risk mitigation strategy is to sell these properties in as-is condition. The good news is that by the time most banks get a property, a good attempt has been made to sell it on the open market at a decent price, so the bank should know what it’s up against. The bank at this point is simply trying to recover as much of their loss as quickly as possible.
Here are a few things to remember that will help you minimize your risk when flipping houses.
Watch out for this slow real estate market we are experiencing. The very thing that is producing opportunities for investors who are interested in flipping houses is the thing that can sabotage plans to walk away with a hefty profit.
There are fewer buyers out there right now. And they too are buying houses priced competitively. These are the same people you must sell your flip to.
Do not buy a property to flip unless you know the exact market price for that home in peak condition. And plan to price it just below that market price if you want to move it fast. Don’t make any assumptions about market value. Base it on facts and get professionals to help you with this.
Do not buy a property in a bad location. You can make repairs, replace carpet, paint, landscape, and remodel to increase the market value of a home to the point you make a profit. You cannot do a single thing to cure a bad location.
Keep a cash reserve on hand. Banks want at least 25% down on the purchase and have many other stipulations for people interested in flipping houses. And don’t even ask for funding for improvements.
Be prepared to locate and look at lots of properties to find the right one. It will take considerable effort to find the right house for flipping. Be patient. Be diligent. Be well funded. And be ready to move quickly when you find a house that fits your criteria.
Make your money over time. You will not get rich on your first deal. Hopefully you will do a little better than breaking even. When flipping houses there are many pitfalls just waiting to take your profits. And you will make the most mistakes at first too. Set realistic average profit goals and know that some will be more profitable than others. Flipping houses is a business, treat it like one.
Flipping houses is a highly profitable business if they are based in a convenient location. You could increase the market value by remodelling. It is essential to keep the cash reserve on hand. Foreclosures are the best source of income for the flipping houses.