In the 1980s, a recession left countless foreclosed homes on the market at low prices. Real estate investors saw a new investment opportunity they couldn’t pass up. They bought houses at low prices, made improvements to them, and then held on to them until the economy got back on its feet.
When the market recovered, they sold their renovated houses for a substantial profit, and the practice of house flipping was born. While flipping never completely stopped, you didn’t hear much about it again until the 2000s, when TV shows gave it new popularity.
Since then, it’s become a common way to invest in real estate. House flipping is currently at a 20-year high, with the average profit on a flip being over $70,000.
Knowing that, it’s not surprising that you want to get involved in house flipping. So here’s what you should know about house flipping as you get started.
You Have To Do A Lot Of Research
What the cameras don’t show you on those house flipping shows is how much research goes into a flip before you ever make the purchase. For a flip to be profitable, it has to meet a few conditions.
There are a few factors you can’t change about your flip. You can’t change where it’s located, what’s nearby, or what the average house prices are in the area. Because those are things you can’t change, you need to take them into account before you buy.
If a house is in the middle of nowhere or a “bad” area, consider skipping it. The same goes if the houses nearby haven’t been selling well. You don’t want to spend money upgrading a house and then not get it back when you sell.
The Normal Real Estate Stages Apply
The key stages of a real estate transaction include making an offer, initiating escrow, conducting inspections, getting approval, and closing the deal. Those are all stages you’re going to go through when buying and selling a flip, so let’s break them down.
Making An Offer
A formal offer details the amount the buyer is willing to pay for the house.
Escrow is when all important documents involved in the buying and selling process go to a third party to be protected.
A professional inspector evaluates the property so everyone knows about any problems that need to be addressed.
If the inspection goes well, a final price is agreed upon, and the buyer contacts their lender to get approval.
Closing The Deal
The agents and attorneys involved write up the paperwork and the final sale is made. As a flipper, you’ll go through this process from both sides before the process is over.
Improvements Can Add Up
The improvements you make to your flip can really add up, especially if work has to be done that you weren’t expecting. Have a thorough inspection done before buying the property to lessen the chance of unexpected problems.
At the beginning of your upgrading process, decide what improvements you’re going to make. Start with upgrades involving the structure or safety of the home, as those must be up to code to sell. Create a detailed budget for those improvements and stick to it so you don’t end up losing money.
You have to be careful when choosing your upgrades, anytime you go over budget it comes directly out of your profit.
You Need A Loan
You know the basics, you found the house you want, and you’re ready to start the loan process. If this describes you, it’s time to apply for a fix and flip loan. This loan gives you the money you need to make your purchase and do your upgrades.
All you need to do is fill out an application and provide the appropriate documentation so they can review your request. If approved, you can close on the house and begin the reno process. When the reno is done, you can put it on the market, sell it, and repay your loan.
After the process is complete, you should have a nice profit to show for your hard work.
Now that you know more about house flipping, you’re ready to swing those hammers and close those deals.