Do you enjoy watching home decorating shows filled with inspirational property makeover stories? If you love watching a home turn from a dud into an interior decorating dream, then a career in house flipping might be for you.
Despite inevitable ebbs and flows in the housing market, the reality is that real estate remains a strong and secure investment. Still, it’s important to know how to approach it the right way.
Today, we’re sharing a complete guide on how to fix and flip houses that not only look great but sell well!
What Is a Fix and Flip Property?
Before we dive into the ins and outs of flipping houses, let’s answer one basic question: What is a fix and flip property?
In short, this is any type of investment property that an investor purchases with the intent of renovating it and selling it at a higher price point than they paid for it.
This type of real estate business model can apply to a range of different property types, including:
- Single-family homes
- Multi-family units
Keep in mind that to be considered a flip, the property must be purchased with the intent to quickly resell it. In most cases, these homes are back on the market within one year.
In this way, fix and flip properties are different from another type of real estate investment: buy and hold properties. The latter is a strategy in which an investor buys a property and rents it out indefinitely or holds it personally for several years. Instead of making upgrades or changes to the property, they simply put it back on the market when industry conditions become more favorable.
Timing the Market Right
For this pursuit to be profitable, it’s important for investors to understand the basics of repairs and renovations. While flip houses will usually need some degree of work, you’ll need to keep your budget in mind before diving right in.
Unless your fix and flip funding is in order, you could easily sink a ton of money into a property only to find that you can’t actually sell it for more than you’ve put into it. Sometimes, investors even wind up in a financial bind because they spent more on the repairs than they could ever hope to recoup in a sale.
Again, timelines are key here.
If the market is hot and the timing is right, you might find that you can purchase a flip home, wait a few months, and list it again for a higher price. This is especially the case if houses are in high demand in the area and prices are quickly rising.
If you can buy a property before prices skyrocket, then you might be able to cash in on that lucrative opportunity. However, most flippers will need to invest at least a portion of their money into sprucing a house up before they can sell it.
Understanding Necessary Repairs and Renovations
Understandably, you want to put as little money into the flix and flip house as possible. Yet, to turn a profit you’ll likely need to invest in a certain degree of upgrades.
The idea is to make sure that the final house is on par with the other properties in the neighborhood or local community. That way, you can command a fair price when you list it.
While you don’t want to invest in a laundry list of repairs, there are a few smart changes you can make that will have a major difference. As you research the ones to pursue, remember that not all renovations will add monetary value to the home. At the end of the day, you don’t want to spend more on this project than you can realistically earn back in the sale.
Start by taking a look at the exterior. Experts agree that this is the top factor that buyers consider when first viewing a home. If you can “wow” them with a great first impression, then they’re more likely to look past minor issues when they get inside.
That said, how can you maximize your impact here? Good fixes include:
- Strong, sturdy front doors
- Manicured landscaping
- Fresh mulch
- New shutters
- New exterior paint
- New exterior light fixtures
- Repair/replace windows and screens
Once you’ve taken care of those changes, you can start thinking about ways to spruce up the interior. While there’s no right or wrong approach, remember that details are key. New light switches, fresh hardwoods, and a bright coat of paint can often make a bigger impression than more expensive upgrades, such as a whole-house water filtration system.
Financing a Flip
Not everyone has enough money in savings to simply buy a fixer-upper and work on it using their own money. This is where fix and flip funding comes into play.
If an investor is unable to buy a property directly using cash, then they can go one of two routes to secure the capital they need:
- Flip loans
- Hard money loans
A flip lender or hard money lender is accustomed to providing short-term loans with terms that usually span less than one year. They know they’ll get their money back in a short timeframe as long as the house sells as it should. These types of loans are known as bridge loans.
What happens if you don’t sell the home by the time you’ve agreed to pay back your lender? In that case, you might incur additional fees and upcharges. Or, you might be able to secure a traditional loan from a bank or credit union and use that money to pay off your real estate debt.
Finding the Right Property
As you might imagine, the kind of property you select can make or break your fix and flip deal. If you feel qualified to survey the market on your own, then you might be able to find a great fixer-upper with tons of potential.
However, many flippers rely on a wholesaler to take care of this work for them. Not only can a wholesaler help you find a great property, but they can also take care of most of the other administrative work required to get the process started, including:
- Hiring a real estate agent
- Analyzing the purchase deal
- Making an offer on the property
- Negotiating a favorable price
Most wholesalers keep a running list of interested flippers who want properties with certain specifications. Then, if they come across a home or building that meets those specs, they’ll reach out and let them know.
Where Investors Go Wrong
Flipping houses sounds like a great idea to many people. It offers you the chance to work on your own terms, indulge your creative side, and earn money doing something you enjoy.
Yet, while this market remains a popular one, it’s all too easy to get in over your head. The top two mistakes that potential flippers make include:
- Not timing the market correctly
- Failing to evaluate the home’s condition
Let’s take a look at each of these in greater detail.
Not Timing the Market Correctly
As mentioned, the best time to buy a flip house is when demand is up and prices are just starting to rise. This is what’s known as a seller’s market.
If the market is more balanced, it’s still possible to make money by fixing and flipping. However, to turn a profit, you’ll likely need to invest in a lower-value home and work to improve it. In many cases, this means buying a distressed property or a foreclosure.
While you can sell these properties for more than you pay for them, it will require more money to do so. Before jumping in, make sure that you thoroughly understand the scope of work before you, as well as the associated costs.
Failing to Evaluate the Home’s Condition
Many would-be flippers use the wrong metrics when evaluating the project before them. That’s why it’s always wise to partner with a qualified and experienced real estate professional before buying a home.
This person will know whether or not the property will require extensive repairs before you can realistically sell it. In addition, they’ll also know the comparative market values of the nearby homes and should be able to tell you what you can charge once it’s in good shape.
Are You Ready to Fix and Flip Houses?
With the rise of interior design television shows, blogs, and social media accounts, it’s no surprise that the flipping market remains white-hot. Yet, it isn’t quite as easy to fix and flip houses as you might think.
There are many considerations that factor into this journey, including the status of the property, the extent of repairs required, and the condition of the market. While there is a degree of risk involved, you could still come out on top if you take those factors into account.
Looking for more advice on this market? Check out our Household and Real Estate guides!