Flipping houses can be a path to a small or larger business depending upon your goal. It can also result in blown budgets and small returns if you’re not mindful of the process. To ensure you’re making the most of your investment and time wisely, you’ll want to spend some time thinking about what you can expect.
If you’ve never flipped a house before, but the thought of being your own boss and having flexibility sounds good, then you’ll need to dig in and discover what the flipping process looks like and how you make a profit. So before you get ready to flip your first house, make sure you consider (and find) the answers these important questions.
Which is the more Important Price? Purchase Price or Sales Price?
In the majority of real estate flips, there’s a clear and obvious answer – it’s the purchase price. Some newer house flippers may miss that there’s an upper limit to any sales price they can possibly attract for a flip, no matter how great it looks when it’s finished. Home buyers are only willing to spend so much per square foot on a home. So the only way that price goes up would be if there was additional square footage added. If not, then you are going to be capped at that price per square foot limit.
That makes your purchase price the most important aspect of your first real estate flip. You don’t want a house that’s slightly underpriced for the market – you want a house that’s below the average market price for the area. These houses may need some work and they’re not always an easy find. And there’s usually more than one person interested in them. Once you know how the purchase price is going to affect your resale your next best step is getting a plan together on how to find those homes.
Where Should I Look for the Best Deals on a Flip?
First, you’re going to want to get familiar with some of the most common ways to find homes to flip. Going with one strategy and then after a few half-hearted attempts saying it doesn’t work isn’t helpful. Create a strategy that you can follow once you identify the one or two ways that you’re most comfortable with tackling. Understanding the commitment from each of these will also help you identify those that work best. Remember, the more options you choose the more time and energy you’ll need to work on them. The upside is that you’ll have more opportunities to find homes.
Who Do I Know?
The absolute best referrals often come from other people. Think about realtors. They refer painters, flooring crews, plumbers, electricians, stagers, and just about anyone else who works on homes. When you are flipping houses you’ll definitely need a realtor. You’ll also need contractors. And when you find one, ask them who they know. Some of the best referrals I have received are from other contractors who know a plumber or an electrician they’ve worked with on another job.
What’s My Timeline?
When you are tying up financial resources there’s a cost associated with that. If you are borrowing to fund a flip then you’ll want to be aware of your timeline and the costs associated with that. Putting together a calendar and plan for your flip will help avoid one of the most common challenges I see flippers have. The never ending flip. It’s reasonable that there will be delays but when it goes from a few days to months that’s a big deal.
What Are the Current Market Conditions?
No need to have the ability to predict the future but having an awareness is part of the process. Is the real estate market strong for sellers or for buyers? What is the average time on the market? In the locations you’re considering for your flip are there many homes for sale? All of these questions can impact your flip. A strong sellers market may drive up the price of the flip purchase if there are multiple parties interested. If the market is more buyer focused you could find yourself with a few good opportunities. If there are less people buying than your offer may not be as high. Set a baseline minimum for your profit and work your numbers around that. If the market demand is there you may find yourself in a multiple offer situation.
Am I Able to Look at This from a Business Perspective Not a Personal One?
In many ways people struggle with this more than many other areas in their flip. It can be difficult to walk that line of not enough and too much. There are plenty of flips on any given day in a market that are sitting unsold because the renovations were skimped on. When you over improve, the home may not sit unwanted on market but buyers will recognize if it os over priced and will offer accordingly. Tough to accept but when you know you know. The renovations and design selections for a successful flip need to be balanced in a way that works with the budget, allows for a profit and aligns the sale price of the house with the comparable sales in the neighborhood.
What’s My Comfort Level?
Everyone has a different back story when it comes to house flipping. For some people, they have a job or career that no longer works for them. They want to get into house flipping but have no experience. Other people may have relatives or aquaintances that have been in business for years. Which ever scenario you relate to, know that you can do this either way. There just may be a slightly different path. When you have less experience and resources you may have to start working in areas that are solely based on price. Your comfort level should also be a consideration when you’re thinking about the renovations. Not everyone is ready for a full 3-level renovation when they are just starting out. Think about numbers, the project management and the timeline and go with what’s comfortable.
How Quickly Can I Act?
Anytime a house is a deal and there is profit to potentially be made, there will likely be multiple parties interested. Being prepared to act quickly is the best way to make sure that your offer is considered first. For some sellers, the first offer is easiest to work with. For others, they may want to wait a few days before reviewing. In my experience even in a strong market it’s about a 50/50 split. Sellers who inherited a house unexpectedly and live out of state are usually pretty anxious to get the house sold quickly. When you submit a strong offer right away that may be just the incentive they need to accept the offer.
Flipping houses can be an enjoyable and rewarding way to make money. It can be an alternative from a traditional career while providing an opportunity to build and run your own business. Making sure you understand what this business entails and preparing will be a necessity for success. With smart and deliberate steps, you can turn your flipping into an entirely new career path. The choice is up to you.
I’m Ready to Flip, What’s Next?
Ready to take that next step when it comes to flipping?
That’s why I’ve got additional resources to help you get the information you need to move forward on creating your flipping life.
Make sure you have the Fixer Upper Checklist so you know which areas are key to added value in a home.
There are several videos available on finding houses, renovations, and funding on the Threshold Homes YouTube Channel. Check out your favorite flipping topics and new videos weekly.
You can’t close a successful and profitable flip unless you start. What is your biggest challenge with getting started house flipping? Let me know. It may be an area I’ve also had questions about myself. I’m here to help so drop me a DM.
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Looking to buy a house to renovate? Check out the fixer upper checklist to help you find the house with the most “flip” potential. For more inspiration follow me on Pinterest @thresholdhomesmn
