Tag: Flipping

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Flipping

5 Tips to Flip a Really Old House (Challenging but Possible!)

The interior of an old home with aged wooden frames and dry leaves
Source: Mahdi Dastmard on Unsplash

Countless shows have entertained us with the possibility of flipping an old house (over 50 years old) for profit. It used to be simple, too: find a run-down house, fix it up, and sell it for easy money.

However, in today’s market, flipping a house has become much more challenging. Properties are increasingly more expensive to buy and fix up, and more and more wholesalers vie for the same investors.

And everything is exponentially more complicated if you flip an old house—the lower the starting point, the rougher the road is to flipping success.

So how can you flip an ancient house? Here are five critical tips for house flippers to remember.

1. Pick a Home in an Excellent Location

You can change everything about a house except for its location. So pick a home in a good neighborhood, often categorized by its amenities (e.g., near schools, public transportation, etc.).

No matter the potential you see in an old home, never choose one close to the freeway, with a high crime rate, or anything unappealing like that. Nobody wants a pretty property that’s in a terrible location. Instead, purchase a home in a prime location, and you’ll appeal to many potential buyers.

2. Check Your Numbers, and then Check Them Again, & Maybe Again!

How much is the house worth? How can you get it under the market value so you’re making money right off the start? Moreover, how much will it cost to bring it up to a sellable standard?

Knowing your numbers is vital in all real estate investments, but it’s especially crucial to flip an old home.

If you’re not experienced in answering any of the questions we’ve mentioned above, you’ll need to hire these professionals:

  1. Real estate experts to know the estimated property value
  2. Contractors or inspectors to determine the estimated renovation costs (ERC)
  3. Real estate agent or broker to determine the after-repair value (ARV)

These professionals will help you flip an old home, especially given how tricky it is to renovate and know the value of a subpar property; doing things yourself might lead to underestimating or overestimating the cost and value, which could put your entire investment at risk.

3. Understand What Needs to be Done—and What Really Doesn’t

A home inspector can help you understand what needs to be fixed in a house before you sell it. Oftentimes, old houses need work in these areas:

  • Outdated outlets and electrical systems
  • Outdated heating systems (HVAC units)
  • Obsolete plumbing systems
  • Foundation issues
  • Deteriorating roof
  • Hazardous building materials
  • Old windows and door frames

These structural issues are called the “bones” of a house because they’re essential parts that make up the structure and safety of the property. You can get away with ignoring other cosmetic details like paint colors or flooring when flipping an old house, but you absolutely cannot ignore the bones. If any of these areas are not up to code or need significant repairs, it will be especially difficult (and expensive) to fix before selling. Contract a professional inspector to confirm the condition of an old home before you buy to stay in the clear.

4. Find Reliable and Honest Contractors for Repairs

Once you’ve bought the house and know what needs to be fixed, it’s time to find a contractor.

A lot of people try to save money by hiring an unlicensed contractor, or by avoiding getting  multiple bids from different contractors. As a result, they often overspend on repairs or end up with a subpar repair job. Cutting corners can cost you thousands of dollars and cause significant delays in selling the property.

Find a good contractor by following referrals from friends, family, or other real estate investors who have flipped homes before. Once you have a few referrals, interview each contractor, get multiple bids, and check their licensing and insurance.

Here are the two categories of contractors you’ll choose between:

  • General contractor: If you choose a general contractor, you’ll only have one point of contact who’s in charge of managing the entire project from start to finish. A general contractor should be someone who is capable of managing every step so you can trust them the entire way.
  • Subcontractors: If you choose to go with subcontractors, you’ll do the overall managing yourself and have a group that includes electrical, plumbing, HVAC, framing, insulation, painting, and flooring professionals. You’ll also need backups to these roles so you’re never left hanging if one subcontractor calls out sick.

A good contractor is honest about the repairs that need to be done, gives you a fair price, and has a good reputation. Don’t be afraid to negotiate with contractors—remember, it’s your money and your investment, so you should feel confident in getting the best value for the repairs.

5. Build More Time than Usual Into Your Timeline

Old homes usually need major modifications and there’s bound to be a surprise or two!

You may need to redo narrow staircases, hallways, and doorways. Moreover, you’ll likely have to take down walls and rearrange the layout to modernize the old home by creating larger living spaces.

You’ll likely touch every part of the house—the electrical, plumbing, framing, and more—and you’ll need to strictly stick to your timeline to cover all the necessary steps. You don’t want to skip, delay, or rush any of those steps, either, (like installing drywall to see immediate improvement) because the structure or “bones” is what truly makes the property valuable.

Essential renovations take time and careful planning; don’t get too excited with the finishing stage.

Instead, plan ahead realistically, stick to your timeline, and schedule when each subcontractor should start their part of the project (if you’re not using a general contractor). You’ll make much better use of your time without sacrificing the quality of the finished property.

House Flips for Huge Profits: Old Homes for New Money

Have cautious optimism when flipping an old home. As long as you understand what you’re getting into before making an offer, lend your due diligence to inspections and contractors, and have a solid plan for repairs, you can make a tidy profit by flipping an old home.

Do you need more help flipping old homes? Sign up as a member, subscribe to our newsletter, and join us in our upcoming meeting! Stay updated with the latest tips and tricks by joining a community of like-minded individuals for your real estate investment journey.

See you in the winner’s circle!

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Flipping

Flip Responsibly: 8 Legal Risks You Must Know About House Flipping

Source: Zillow listing in the City of Detroit

We get it. It’s scary to get into real estate investing, especially if it’s to flip a home.

Countless shows have “proved” flipping to be easy, but the reality is much more challenging. As a house flipper, how much money should you spend on the renovation? How fast do you have to complete it?

And, most importantly, how can you flip a house legally?

Well, you must know eight legal risks when doing house flips. You may be in trouble if these aren’t handled properly, so we’ve outlined the most crucial house-flipping legal risks below.

Risk #1: FHA Re-Selling Restrictions

The Federal Housing Administration (FHA) is the largest mortgage insurer worldwide and gives mortgage insurance for loans made by approved lenders. Unfortunately, the FHA also places several restrictions on its mortgages, which limit how often a home can be bought or resold.

For example, known as the “anti-flipping rule,” you must wait at least 90 days before selling or flipping an FHA-financed home. Moreover, any resale between 91 and 180 days where the new property price exceeds its previous price by more than 100% will need more documentation for the FHA.

Risk #2: Building Codes and Zoning Regulations

Ensure that the property you buy complies with all local building codes and zoning regulations. Failure to do so can result in costly fines for both the buyer and the seller. So, take your time researching local laws to stay updated with any changes in any area before flipping a house.

Risk #3: Right of Rescission Rules

Be aware of any “right of rescission” rules that may apply in your jurisdiction when transferring property from one party to another. These legalities can vary by state, but they provide rights and protections if a homeowner wishes to back out of an agreement within three days of signing the contract.

Risk #4: Real Estate Contracts and Disclosure Statements

It goes without saying (rather, we wish it could) that you should understand the contract that you’re signing when purchasing a property. Read through the entire thing carefully and ask questions if there are any items that aren’t clear.

What novice flippers might miss, however, are the disclosure statements that must be included in real estate transactions, like lead-based paint disclosures or radon gas disclosures. Not complying with these regulations can result in fines and lawsuits against your flipping business, so always double-check.

Risk #5: Financing Fraud

Document everything thoroughly when financing a flip project. You’ll want to do this because lenders are tightening up, most notably regarding mortgage fraud and loan misrepresentation.

Refrain from misleading them about your financial situation to secure financing for a property, as failure to disclose all necessary information can lead to serious legal repercussions. And once again, fully understand the terms and conditions of any loan you take out.

Risk #6: Fair Housing Laws

Fair housing laws protect buyers from discrimination based on race, religion, gender, or nationality. As a flipper, you must abide by these laws and never discriminate against potential buyers when marketing your flipped home. If found in violation of this law, you risk heavy fines and even jail time.

Violations include, for example, sending out a direct mail advertisement for a home featuring only families with young children and not mentioning any other age groups or demographics—it’s considered discrimination.

Risk #7: Mortgage Loan Fraud

Chances are, you don’t have enough cash on hand to purchase your property. So, you’ll likely involve banks and lenders to finance your project.

Lending can become a cycle: you take out a mortgage to purchase the home, the next buyer acquires their own mortgage to buy the home from you, and so on. That cycle becomes ripe for mortgage loan fraud, where the buyer misrepresents their financial situation to get a larger loan.

To avoid fraud, request proof of income and other documents when dealing with buyers. You can also use third-party services that review potential buyers’ credit scores and verify their employment history before they purchase the home from you. These practices will help protect you from any fraudulent activities.

Risk #8: Issues With the Property Title

You may notice a lot of affordable properties in the market to flip for a significant profit. But between lenders, borrowers, real estate agents, and more, it can be challenging to know who owns the property you’re looking to flip—who can legally sell it to you.

So, before you acquire any property, ensure that you have title insurance to verify the title’s status on your behalf, and do your due diligence before making any major decisions. As much as possible, you should avoid dealing with fraudulent titles or legal disputes that could arise from a previous owner.

House Flipping With No Legal Repercussions

House flipping can be an incredibly lucrative business venture. By understanding these legal risks upfront, you’ll be in a much better position to have a large profit margin when entering this endeavor.

Just remember: consult with a local attorney if you have questions or concerns prior to doing any real estate transaction. Ensure that everything is done in accordance with all applicable laws and regulations to truly (and surely) build your house-flipping empire .

Do you need more help in house flipping? Join as a member, subscribe to our newsletter, and attend our upcoming meeting to stay updated with the market. You’re only as strong as those around you!

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Flipping

Taxes Made Simple for House Flippers

Source: Zillow

House flipping is a popular real estate investment strategy in which investors purchase properties, usually at a significant discount, fix them up and then resell them for a profit.

While the practice has been around for decades, it only gained popularity recently, particularly in the wake of the housing market crash of 2008, when many homeowners lost their homes to foreclosures—leading lenders to sell for cheap, and investors to buy rundown homes to rehabilitate and sell at profit.

Still, interestingly, house flipping is not just for professional real estate investors. Anyone can be a house flipper with the right knowledge and drive. In fact, many first-time investors have found success in this niche market—we’ve seen it happen.

If you’re thinking about getting into house flipping, there are a few things you need to know about the tax implications of this type of investment. Check them out below.

1. Document Every Expense!

As with any other investment, you must keep good records when flipping houses.

This will help you in two ways:

  • Doing so will make it easier to calculate your profits (and taxes owed) when you sell a property.
  • It will give you the documentation you need if the IRS audits you. As you can imagine, flipping houses can generate a lot of documentation, so it’s essential to have a sound system for organizing and storing your records.

2. Expenses to Deduct During Tax Time

If you’re flipping houses, there are a ton of expenses you can deduct when it comes to tax time.

There are two main types:

  • First, just about everything you spend buying, fixing up and selling the property.
  • Secondly, your business expenses, like auto payments, gas, for your auto, computer stuff, marketing the property, even snacks you buy for the contractors!

Say you spend $10,000 repairing and renovating a house that you sell for $50,000. In this case, you can deduct the $10,000 in expenses from your profits, leaving you with a taxable gain of $40,000.

3. You’ll need to pay capital gains tax on your profits.

When you sell an investment property, you must pay capital gains tax on any profits you earn. Capital gains tax is simply a tax on the profit you realize from the sale of an asset. In the case of house flipping, your asset is the property itself.

The good news is that there are ways to minimize your capital gains tax liability.

For example, if you hold the property for more than one year before selling it, you will be eligible for the long-term capital gains tax rate which is generally lower than the rate for short-term gains. Additionally, you can take advantage of certain deductions, such as the costs of improvements made to the property.

4. You may be subject to self-employment tax.

Another issue you can face is if you’re flipping houses as a business venture—then you may be required to pay self-employment tax on your profits. Self-employment tax is essentially Social Security and Medicare tax for the self-employed. The current rate is 15.3% which includes the employer and employee portion of the tax.

However, there are circumstances under which you may not be required to pay self-employment tax.

For example, you may not be subject to this tax if you’re flipping houses as an individual investor (rather than through a business entity). And if your total income (including your flipping profits) is below the self-employment tax threshold ($400 for 2019), you will also be exempt from paying this tax.

Of course, nobody is going to flip a home for a mere $400. But you get the point.

5. You can avoid capital gains tax via a 1031 Exchange.

Let’s suppose you’re looking to reinvest your profits from a house flip into another property. In that case, you can do so without paying any capital gains tax by taking advantage of the 1031 exchange provision. This provision allows investors to defer their taxes by rolling their profits into a new investment property.

For example,  if you sell a house for a $50,000 profit, then you can use that money to purchase a new investment property without paying any capital gains tax on the sale.

The negative of doing a 1031 Exchange is that you can’t use any of the funds from the sale to live off of.

6. Other taxes depend on your location.

In addition to federal taxes, you may be subject to state and local taxes on your house flipping profits.

These taxes will vary depending on your location, so it’s important to check with your state and local tax authorities to determine what you’ll owe. For example, in some areas, you may be required to pay transfer taxes when you sell a property.

7. You may be required to pay estimated taxes.

Next up, if you’re flipping houses as a business, you may be required to pay estimated taxes on your profits. Estimated taxes are periodic payments made to the IRS throughout the year, based on your expected tax liability for the year. They’re due yearly on April 15th, June 15th, September 15th, and January 15th.

If you fail to make your estimated tax payments, you may be subject to penalties and interest. Therefore, staying on top of your estimated taxes is crucial if you’re flipping houses as a business.

Uncomplicated Tax, Uncomplicated Profits

We hope this quick overview gave you a better understanding of the tax implications of house flipping.

As with any type of investment, it’s important to do your homework and consult with a tax professional before getting started. But if you’re looking for a lucrative investment opportunity, house flipping may be just what you’re looking for.

Maximize your flipping profits today! Join as a REIA member, attend our upcoming meetings, and sign up for our informative newsletter. We can help you take care of all the details, from repairs and renovations to accounting and taxes.

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Flipping

Increase Flipping Power: How Financing and Loans Work in House Flipping

Source: Zillow listing as of August 2022

Most house flippers don’t have the cash themselves to purchase a property & renovate it outright, so many have to learn how to acquire loans. But if you’re new to house flipping, securing financing may seem daunting.

So the question is—where do you start?

We’re here to help guide you through the process of financing your first flip. Here are the 4 steps to getting a loan for house flipping, so you know how to get one yourself.

1. Determine How Much to Borrow

The figure differs for every individual and investment. Generally, it’ll depend on your current purchasing power, the property’s purchase price, and estimated repair costs (ERC). If you’re new to house flipping, we recommend you work with a trusted and experienced inspector to have accurate numbers.

Once you know the total amount necessary, decide on what type of loan to get.

2. Decide on the Loan Type

Now, different types of loans are commonly used for financing a flip. However, if you want to play it safe, the most common loans are conventional, hard, and private money loans. Here’s the low down on a few different loan types:

Conventional Loans

Conventional loans are usually the best option if you have good credit and can qualify for a traditional mortgage. The interest rates on conventional loans also tend to be lower than other types of loans, making them more affordable in the long run. The only negative is that the property must be in livable condition, which doesn’t lead to the best deals.

Hard Money Loans

Hard money loans are typically easier to qualify for than conventional mortgages, but they come with higher interest rates. Hard money lenders will also often require that you have some skin in the game by putting down a higher down payment or using your own personal funds for the renovation.

Private Money Loans

Private money loans are given by private individuals or investors instead of banks or other financial institutions. Because of that, they usually have more flexible lending criteria than traditional lenders, making them a good option for borrowers with less-than-perfect credit. However, they take higher interest rates and fees.

3. Shop Around for Lenders

Once you’ve decided which type of loan is best for your financial situation, it’s time to look for lenders. You can find lenders online, through a local chamber of commerce, or by talking to other flippers in your area.

When you’re comparing different lenders, pay attention to the interest rate and fees associated with each loan. You’ll also want to ensure that you’re comfortable with the repayment terms. Some loans may have prepayment penalties which means you’ll owe a fee if you pay off your loan early.

4. Apply for the Loan

Finally, you’ve found a few lenders that you’re interested in working with; it’s time to start the application process. The first step is to fill out a loan application. You’ll need to provide information about your financial history, as well as the details of the property you’re planning to flip.

After you’ve submitted your loan application, the lender will review your information and decide whether to approve your loan. If your loan is approved, you’ll be given a loan estimate that outlines the terms of your loan, including the interest rate, monthly payment, and repayment schedule.

Take your time reviewing all options, sift through the best ones, and accept the one that gives you the best terms. Don’t accept loans haphazardly, or you’ll dig a financial hole before you even start flipping.

Expand Your Purchasing Power with Flipping Loans

You’re now ready to shop around for the best deal on financing your next flip!

As you can see, using a loan is much better than using cash, as it increases your flipping power. Even if you’re a seasoned flipper and have a ton of cash on hand, you still want to increase your deal flow as much as possible to flip more properties. Loans allow you to work on bigger and better projects—even multiple projects at once—without tying up all your own cash in them.

And if you need more help, don’t hesitate to join as a member of REIA today and attend our upcoming meeting. You can also sign up for our newsletter so you never miss any important tips to become a successful house flipper.

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Listen and Learn: Top 5 House Flipping Podcasts to Follow

Photo by Wes Hicks

House flipping is a highly competitive business that is only growing more cut-throat. With how much competition flippers have to deal with, how do you stand out and become successful?

The best way to gain a competitive edge is to educate yourself. You need to be constantly updated on the best house flipping practices and techniques to one-up your rivals. 

Reading a book is a great way to learn the tools of the trade from professional real estate brokers. But, in this day and age, instead of learning from books or blogs, listening to a podcast is a better use of your time. You can listen to a podcast and learn the latest trends of the real estate market while working on your portfolio, cooking dinner, or driving to your next showing!

Here are some of the 5 best podcasts for some house flipping tips. 

The 5 Best House Flipping Podcasts to Listen to

So, you’ve decided to look up some podcasts to expand your house flipping know-how, but do you find the best podcasts that can teach you the best practices of house flipping? To get you the latest developments in the real estate business, we made a list of the top 5 real estate podcasts that can help you become a successful house flipper. 

1. 7 Figure Flipping with Bill Allen 

In this podcast, Bill Allen shares how he and his team make 200 flips and wholesale deals per year. With 7 Figure Flipping, you’ll learn the tools of the trade from house flipping professionals, as the podcast regularly deals with the current trends of the real estate market. 

Take, for example, in his recent episodes, “How Jesse Trujillo Flipped 60 Houses during COVID,” where Jesse divulges his experiences during the pandemic. In the episode, Jesse talked about how he had to adjust his business strategies to fit with the times and how the market is reacting to the changes in buyer spending habits. 

What makes this show especially unique and appealing is its openness to bringing on beginners. For example, one recent interview was with a guest who recently completed their first successful house flip, and what they learned from the experience—perfect for beginner investors to get some valuable tips. 

With the variety of topics this podcast discusses, you can expand your knowledge base of the real estate industry and can help you become a top house flipper. 

Listen to 7 Figure Flipping with Bill Allen now.

2. The Real Estate Guys

Started as a conventional radio program in 1997, it’s currently one of the most downloaded podcasts on iTunes. Robert Helms and Russel Gray, cover topics like strategies to increase equity, lower property taxes and increase your cash flow. 

Listeners can learn the latest and greatest real estate tips from experts who have already done it. With years of experience in their pockets, both Helms and Gray have the know-how that every flipper can learn from. 

Take for instance their “COVID-19 Investing Opportunities series,” where they invite guests to discuss the current trends of the real estate market during the pandemic. With the wide variety of topics covered by The Real Estate Guys, every flipper will have something to learn from this podcast. 

Listen to The Real Estate Guys now.

3. Investing in Real Estate with Lex Levinrad

For people just getting into the house flipping business, this podcast is an ideal study partner. 

The podcast delves into topics like how to acquire foreclosed properties and how to buy bank-owned properties. You’ll learn all the secrets to getting the best real estate deals. In interviews, you’ll get first hand stories from successful real estate investors who share their strategies for becoming a thriving real estate investor.

Lex also talks about the important topics that every real estate investor needs to know, like understanding rental property returns. The podcast also goes into more eclectic topics like why some of his real estate students succeed and why others fail.

All in all, by listening to the Investing in Real Estate podcast, you can learn some of the tricks of the trade that can assist in making you a successful house flipper. 

Listen to Real Estate with Lex Levinrad now.

4. Flipping Houses for Rookies

Just getting into the house flipping business? Well, this podcast can help. Flipping Houses for Rookies will teach you some of the basics to get you started on your flipping journey. 

By tuning in to Flipping Houses for Rookies, you’ll learn valuable topics like:

  • How to buy real estate without a loan
  • The necessary paperwork for flipping a property
  • How to find deals over the internet 

Listen to this podcast for all you need to know before you get into house flipping. As the name says, Flipping Houses for Rookies is a great learning tool to get the ball rolling on your house flipping endeavors.

Listen to Flipping Houses for Rookies now.. 

5. Flip Talk

For those who already have some experience, Flip Talk is a great podcast seeking to help flippers grow their real estate business. The host, Don Costa, is a successful flipper who wants to impart his knowledge and teach you how to become the next real estate success story.

He interviews successful house flippers and other real estate investors about their tricks to making it in the business. For example, they recently invited 18-year-old Jacob Black, who is now the CEO of a seven-figure real estate company, to share his tips for growing his business. 

If you want to hear from some of the biggest names in real estate—this show will help you level up and keep you coming back for more. Get an inside look at some of the strategies these big names used before they got where they are today. 

Listen to Flip Talk now.

Follow Success to Become a Success

To become a successful flipper, you need to have your thumb on the pulse of the market. That means you have to have in-depth know-how to avoid making your next flip a flop. And real estate podcasts are a great way to stay up to date and informed. 

Even if you already have experience as a house flipper, you can always benefit from gaining more knowledge. With these podcasts, you can expand your grasp on the real estate industry and become a better house flipper. 

Did we miss your favorite podcast? Feel free to leave a comment below! 

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Flipping

5 Signs You Better Walk Away from a Flip

Finding houses that are suitable for flipping is difficult – but that doesn’t mean you should jump on every opportunity that comes around.

Every good flipper knows how to choose properties—and when to walk away from an inevitable flop.

You don’t want to be a rookie who overlooks the basics and ends up with a smaller margin than your time and effort is worth.

So here are five signs to know when a distressed house is better left alone:

1. The location isn’t good.

The most important factor that decides the value of your flip is the location of the house.

  • What kind of city and neighborhood is it in?
  • What kind of residents are in the area? What do they want in a home?
  • How much do similar houses sell for in the immediate area? What features do they have?
  • What are its positive factors (e.g., good schools, shopping centers, etc.)?
  • What are its negative factors (e.g., highways, airports, factories, etc.)?

You need to understand the property in the context of where it’s located to estimate its value, and how fast it’s likely to sell (based on the level of buyer demand in the area). 

Do the same research that your buyers would do, and you’ll see if the location is going to appeal to them.

2. The house is too unique.

While every property will be somewhat different from another, you want to flip a house that’s fundamentally conforming to or better than the standard of the local competition. In other words, they have to be similar to the houses around them, but better somehow.

For example, if the neighborhood is full of single-family homes with 3 bedrooms and 2 bathrooms, you might have a hard time selling a house with 2 bedrooms and 1 bathroom. You will, however, easily sell a 3-bedroom, 2-bathroom home with an attic that can convert to an office area.

Generally, people like lots that are higher than the average size in the neighborhood, so a large lawn is always a good distinguishing feature. Likewise, you might have to be prepared for price adjustments if your lot is smaller than the average locally.

The biggest thing to look out for is a strange floorplan. Awkward layouts will seriously turn off buyers, even if you finish a home to a high standard throughout, and some layouts can’t be changed easily (if at all). Honestly, if you end up with a seriously out-of-date floorplan, you could be better off completely rebuilding a house from scratch in some cases, so this is a definite sign you should walk away if you’re a new flipper.

3. You don’t have enough skills or knowledge.

Unlike professional builders and professionals who’ve been honing their skills for years, you might not have the necessary knowledge to DIY fixes for a higher profit.

  • Do you know your way around basic construction tools?
  • Can you lay carpet, hang drywall, roof a house, and other common but important fixes?

There is money in sweat equity. If you lack knowledge and have to constantly outsource professionals to do the renovations, you’ll deplete the profit you could’ve gotten from your investment. If you lack the skills and still try to fix everything yourself, you might end up making rookie mistakes that’ll be expensive to salvage.

Furthermore, if you don’t have enough knowledge, you could run the risk of hiring a contractor and getting ripped off.

Instead, be realistic and account for your lack of skills when budgeting your flip. If the costs are properly accounted for, you’ll increase your chances of exiting with a good flipping profit.

4. You don’t have enough money.

All real estate investments are expensive.

You need to research your financing options to find which mortgage type will work best for you, and if there’s a lender that can offer you lower interest rates. Cash is possible, however there’s still property holding costs and opportunity costs that you need to consider.

More importantly, there’s the renovation costs. How much will you get after acquiring, holding, and fixing up the house? Novice flippers often underestimate the costs, resulting in net loss instead of gross profit.

To see if your budget is enough to flip-and-sell a house, you need to:

  • Identify how much you need to acquire the property
  • Scan the competition and see how much you can realistically sell and still make a profit
  • Determine how long the renovations will take and budget accordingly
  • Remember to take into account the loan you’ve taken out, taxes, utilities, insurance, and more
  • Be aware of the seasonality that can sometimes affect home prices and the number of days on market (e.g., higher sale prices in late spring compared to winter)

5. You don’t have enough time.

Flipping and selling a house takes a lot of time and dedication—often requiring you to give up a large chunk of your time for a couple of months. 

Not sure if the hours dedicated to flipping will be worth it? Answer these questions:

  • Are you maintaining a separate full-time job? Are you willing to give up weekends and evenings?
  • Do you have the budget to pay someone else to do the work?
  • Will you be available to oversee demolitions, constructions, inspections, and other procedures?
  • How much time will you spend marketing your property? Can you show it to prospective buyers yourself, or do you have the budget to pay for a real estate agent’s commission?

For most people, the time all of this takes isn’t worth it. They’d rather stick to their day job to have a guaranteed income, without the headache of flipping houses, so think carefully about whether or not this commitment is right for you before buying your own investment property. 

Summary

To be a successful flipper, you need to understand the risks involved and how to mitigate them.

Evaluate your house flipping opportunities by doing the following:

  • Check the location of the house in relation to the neighborhood.
  • Determine if the house is competitive enough versus other properties in the area.
  • Budget property and never underestimate the possibility of expensive, underlying problems.
  • Calculate the time it’ll take for you to enter and exit the flip profitably.
  • Be realistic with what you can repair and what you’ll need to outsource.

Making profit from flipping houses isn’t as easy as some other real estate investment methods, but it’s definitely possible with the right knowledge, planning, and courage to walk away from bad opportunities. Keep looking and doing your due diligence, and the right one will eventually come along. 

Trust us, it’s worth the wait.

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Flipping

Time vs. Cost: What Jobs are Worth Doing Yourself?

Don’t you love it when people watch house flipping and renovation TV shows and say, “wow, it looks so easy to flip houses for great returns”? But the reality is that flipping is a risky business that requires a lot of hard work, excellent project management skills, and savvy budgeting in order to succeed. 

One of the most important parts of flipping houses is the way you restore it for reselling. Some flippers like to do nearly all the renovations themselves to save on costs, but others would rather pay contractors to do it to save on time. Many also opt for a mix of DIY and professional contractors, but in this case, which jobs should you handle yourself, and which are best left to the pros? 

While it’s generally cheaper to DIY, those savings could be nullified if you do it wrong and end up with expensive corrections. And while some tasks might look easy, you need to give up significant hours of your own time to learn and accomplish them. So if we look at the time/cost benefit analysis, which jobs are worth doing yourself?

PLAN OUT THE RENOVATION

Before you start swinging a hammer in good faith, go over the whole property and list down all the repairs that it needs, taking into account the cost and lead times for each. If you’re going to DIY, you have to be able to accurately calculate their costs and realistically estimate the time it will take to complete, as well as the order in which projects should be carried out.

DO WHAT YOU KNOW, HIRE WHAT YOU DON’T

SKILL REQUIREMENTS

Fixing high-ticket areas like the roof, floors, and kitchen areas yourself can save a lot of money, because professionals usually charge a premium for these services. However, the reason for that is these tasks require a high level of expertise to do them well. When done poorly, constantly repairing them will outweigh the money you supposedly saved by doing it yourself. 

You might be charged anywhere from $300 – $10,000 for a professionally installed drywall, while you can do it yourself for significantly less. Similarly, painting will cost you $2-3 per square foot if you get it done professionally, whereas you can do it yourself for just the cost of the paint – it also has a low skill requirement, so not much can go wrong if you DIY. 

So if you have experience in doing these, by all means, DIY. But being inexperienced will only leave you with wasted time, accidents, more repairs to fix, and a lower flipping profit.  

PAPERWORK REQUIREMENTS

Some repairs require specific building codes, permits, and inspections, like removing walls or installing new bathrooms. Better steer clear from DIY-ing these, unless you plan to leave your full-time job to be a contractor yourself. A professional will help you with the paperwork required and provide knowledge if the wall is load-bearing, or if you’d need more space for a bathroom. Their work is also insured, so if anything does go wrong, you’ll know that it’s covered.

A GENERAL GUIDE

Which jobs you do yourself should be based on your skillset and condition of the house, as well as permit requirements. Some jobs will require a licensed professional, like installing complete new plumbing, which you need a permit for, unless you want to get a citation from the city. A homeowner can pull their own permit in most states, without a license, because the homeowner is the one taking the risk. But if you do it wrong, you could have an electrical fire, etc., or end up failing your building inspection and being told to redo it.

However, this list should give you a general guide on when to DIY and when to hire a professional:

DO IT YOURSELF

  • Fix an outlet, doorknob, lights
  • Painting
  • Install baseboards
  • Install laminate flooring or luxury vinyl
  • Insulate open walls
  • Install a toilet (bowl)
  • Install minor PEX plumbing

HIRE A PROFESSIONAL

  • Additions
  • Replacing sidewalks and driveways
  • Replumbing the whole house
  • New electrical service panel and circuits
  • Replacing windows
  • Install solid hardwood flooring
  • Installing a furnace or central AC

Timing is everything with a flip, so work within your set of skills. Consider splitting the workload between you and a contractor who can compensate in places where you struggle. That way, you can focus on the things you know how to do, and still save yourself some money. At the same time, you’re not being slowed down by more complicated projects which will take you as a DIY-er much longer than a professional team to carry out.

What are the fixes you DIY when you flip a house, and which do you always leave to the pros?

Image Courtesy of Laurie Shaw

Categories
Flipping Landlords

How to Target Metro Detroit Landlords with your Flip (Part 2)

Last week, we looked at how to plan your flip to target an owner-occupier buyer in Metro Detroit. This week, we’ll take it a step further and consider how to market flipped properties to another kind of buyer, and one which most flippers wouldn’t necessarily consider right off the bat: landlords.

Landlords are probably not going to pay as much as an owner-occupier would, but they could be a consistent buyer for your properties, so building relationships with local buy and hold investors could be a great back-up strategy for marketing your flips.

Especially in the current economic environment, having a consistent buyer for multiple properties could be a serious boon for flippers. More people are choosing to rent long-term rather than buy, and this trend is likely going to continue as we slowly recover from the financial strain caused by coronavirus. But, while first-time buyers could be shying away from buying now, investors are always on the look out for a good deal.

So, here are some points to consider when targeting Metro Detroit landlords as buyers:

  • Landlords are Investors, Just Like You: This means they won’t be sold purely on light, airy spaces and nice kitchen counters – they want to see the hard numbers when making their decision. Highlight the financial benefits of the property when marketing to them, like whether the area has low vacancy rates, the rent-to-price ratio, and CapEx projections for any maintenance that will be required in the coming years.
  • Lower Margins: Buy and hold investors will be looking for a deal, and in Metro Detroit they’re unlikely to be looking for a single family home that costs several hundred thousand dollars, meaning your margins on each sale will be lower. However, you may be able to compensate for this in the volume of sales you do, since a landlord could become a guaranteed buyer for multiple flips. If you build relationships with local landlords, you can also do off-market deals with them, saving both of you time and money spent on marketing and agents’ commissions.
  • Out-of-State Buyers: When you consider the fact that the rental market in Metro Detroit attracts tons of investors from out of state – and even overseas – to the area in search of high rent-to-price ratios, you can see how marketing to this group can significantly widen your pool of buyers. Most of these out-of-area investors look for properties that are fully–rehabbed and ready to rent out, meaning a fresh flip could be the perfect choice for them.

Many of them also look for ‘turnkey’ rental opportunities, meaning properties which have a tenant and property management company in place, so you can find a tenant and then sell your flip as an active rental investment. You can also partner with a local PMC to show landlords that your property comes with the whole package, turning it into a mostly hands-off investment for them.

  • Invest in Different Markets: Selling to landlords can also widen the pool of areas you can invest in, since a strong rental neighborhood and a strong seller’s market are two different things. This gives you the chance to flip properties in lower-price areas, with less upfront capital. You also won’t need to shell out as much for high-end fixtures and fittings, since these won’t matter to a landlord like they would to an owner-occupier.

Landlords may not be your primary market, but they can account for a healthy secondary market when it comes to finding buyers for your flips. Keep these points in mind when targeting local buy and hold investors with your flip, and you could end up with a lifetime customer for your business.

Image Courtesy of Lisa Fotios

Categories
Landlords

How to Target Metro Detroit Owner-Occupiers with your Flip (Part 1)

Home values in Metro Detroit were on the rise at the beginning of 2020, and are expected to continue to increase in the aftermath of coronavirus, making it an attractive market for flippers looking to add value to distressed properties. In this 2-part series, we’re looking at how flippers in the Metro Detroit area can tailor their properties to appeal to different types of local buyers in today’s economy.

The ideal buyer for a flipper is an owner-occupier, since they buy emotionally and thus will usually pay the most for your property. In a perfect world, you’ll even have multiple owner-occupiers vying for your house, leading to a bidding war that drives up the price. The key to generating this kind of demand for your property is to make sure your flip is targeted to appeal to buyers in your area.

So what do owner-occupiers in Metro Detroit look for when purchasing a house?

  1. Location, Location, Location: If you’re just getting started in flipping properties in this area, the most important thing to do is pinpoint the neighborhoods with the strongest demand from buyers. Completing an attractive flip will mean nothing, if it’s not in an area that owner-occupiers actually want to purchase in. In Metro Detroit, the areas with the strongest appeal are cities with vibrant downtown areas, like Ferndale, Royal Oak, Rochester, Plymouth, etc. The cities near these areas are also good places to focus your search. Do as much due-diligence as possible to familiarize yourself with an area before deciding to invest there, since even a few streets over in one direction can make a big difference in terms of desirability.
  2. Floorplans We’ve seen several flippers lose their shirt on a flip they did a great job of renovating, but the property had floorplan issues they didn’t or couldn’t address. Low ceilings in a basement or the upstairs of a bungalow, pass-thru bedrooms, nowhere to dine, inaccessible garages and more. Stay away from these types of projects unless you are really good at calculating an ARV that takes them into account, or your budget includes addressing them.
  3. Amenities: More than ever, homebuyers expect everything to not only be done and done well, but they want all the amenities included. Study what the market wants and include as many as you can in your budget.
  4. Security: People want to feel safe in their homes, but bars on the windows aren’t the most aesthetically pleasing design feature. Consider adding smart security features, like digital keypads and mobile-controlled alarm systems, to give your property a leg up over the competition.
  5. Social Distancing: In the era of the new normal, homeowners are starting to look at properties in a different light. Houses which have large outside spaces, home entertainment features, or are located in less population-dense areas might have a higher appeal than ever before. The same goes for layouts which are conducive to a whole family living and working from home, so think about including a dedicated office space and segmented living areas.

Plan your flip to include these features, and you’ll be in the best position possible to produce a quick sale, so you can get started on your next investment property ASAP!

Keep an eye out for Part 2 of this series, where we’ll be looking at how you can target a different kind of buyer with your Metro Detroit flip: buy and hold investors.

Image Courtesy of Lisa Fotios

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