There are house flippers who make money at it – and house flippers who don’t. It’s typically a high-cost, high-risk, low-return business. Still, there are enormous profits to be made flipping houses, assuming you take only the right risks and you know what you’re doing. Here are 4 of the most important secrets to running a successful business flipping houses:
1. Don’t Overspend on the Initial Home Purchase
It’s tough to find a bargain-priced home in a safe, livable neighborhood. They’re in short supply right now. You’ll be in competition with retail buyers as well as other house flippers and investors when you make your offers on them. But, don’t overspend on a home because of impatience to close a deal and get started. The deal you make to buy the home is one of the most crucial factors in whether or not you’ll be able to turn a profit on the flip.
2. Get the Best Mortgage
There are high upfront costs associated with flipping houses. It isn’t uncommon to spend $600,000 upfront to earn a profit of $40,000 on a flip. If your credit is good, you can get help with some of the upfront costs by getting a mortgage. Be aware that you’ll still need to have access to cash for a down payment and for any necessary repairs and renovations – although you can sometimes negotiate a loan that includes money for repairs.
One of the biggest mistakes new home flippers make is not understanding mortgages, which can lead to paying more than you need to if you choose the wrong one. If you’re serious about flipping homes, it is wise to get educated about mortgages.
A smart approach is to check out services that will help you compare and filter mortgages to find the best one for your situation. For example, Habito is an algorithm-based mortgage broker that uses real-time algorithms to analyze and filter mortgages available from 90 different lenders. Finding the best mortgages from Habito or a similar service can save you quite a bit of time as compared to what it would take to manually review the terms and conditions of various mortgages.
3. Understand the Real Monthly Costs
Every home incurs monthly maintenance costs. For the lush landscaping you’re installing to improve the home’s value, consider the monthly water bills and other costs it could add to your bottom line while you’re waiting to finish the other renovations and sell the home. If you’re paying landscapers to mow the lawn, prune the trees, and keep the flower beds weeded, factor in their costs. What are the monthly property taxes and HOA fees you’ll have to pay while you’re waiting to sell the home? Factor those in, too. Be aware that every month it takes you to renovate and sell the home adds on to your expenses and subtracts from your profits.
4. Understand Cost vs Value on Improvements
A big key to profitable home flipping is to only make improvements that will earn you a good return on your investment. Most improvements won’t ever do that, but there are a few that do. Fresh paint, high-quality insulation, and a new front door are improvements that almost always pay a decent return for the money you spend on them, according to the Cost vs Value Report at Remodeling.Hw.Net.
Don’t be fooled into thinking you need to completely remodel the kitchen to bring it up to date with all the latest kitchen trends. While it’s definitely a good idea to be in tune with the trends, you never want to get too specific when it comes to redoing the home’s look and style. A fresh coat of white paint will usually serve you better than paint in a palette of the trendiest colors. You also never want to make the mistake of over-improving a home in relation to its location.
These are 4 of the most important secrets to successfully flipping homes. If you can get a handle on these 4 things, you’re likely to enjoy success in your house flipping endeavors.Opinions expressed here by Contributors are their own.