House Flipping Part 2

Dec 6, 2012

Here’s a look at the best practices of successful house flippers, as well as tips on avoiding common pitfalls.

Look for potential. Flippers often invest in properties that don’t appeal to conventional home buyers, since they know how to look beyond an outdated kitchen or moldy basement to spot potential. House flippers typically find deteriorated properties through auctions or relationships with local real estate agents.

Do the math. Many house flippers focus on single-family homes because they appeal to more potential buyers. The financing on multifamily homes is more complicated because mortgage lenders have stricter criteria for those. Either way, comparing the purchase price of the property to the after repair value (ARV) is critical. Flippers only earn a profit when the ARV is higher than the original price plus repair costs, so accurately predicting repair costs and the ARV can make or break a deal.

Assemble a team of experts. Successful flippers know their strengths and aren’t afraid to tap other experts, especially technical workers like plumbers and electricians. (For example, never buy a home with a flat roof in Denver because it snows a lot.) Have the sewer line checked by a professional before buying a property, as sewer issues can be costly to fix, and solicit multiple bids and references from contractors to help ensure the job runs smoothly. Building relationships with local real estate agents can also be useful for finding properties and getting accurate ARVs.

Design for buyers, not yourself. Selecting cabinets and paint colors for a flip is different from decorating your own house. The design elements need to appeal to a broad group of potential buyers. Installing features that buyers in the area want, like a wall-mounted TV, higher-quality cabinets, or a built-in wine cooler, can make a property stand out and sell more quickly.

Get a good, qualified buyer. If a buyer falls in love with the property but can’t afford the mortgage, you’ll waste precious time, so it’s a good idea to get pre-qualification from a reputable mortgage broker. The longer a property sits on the market, the greater the likelihood that profits could get eaten by carrying costs.

So much in house-flipping depends on the real-estate market, which we all know is cyclical. During a boom, flippers have the upper hand and can almost name their price in some areas. During a slow period, however, many of these fixed-up homes can sit on the market for months.

[Read: The Best Home Improvements to Please Picky Buyers.]

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