A Step-By-Step Guide to House Flipping
Flipping houses seems like an exciting venture. The TV shows make it look so easy and profitable, but the truth is it takes a lot of planning, hard work and expertise to do it right. You have to have a business mentality when approaching any fix and flip investment, and you have to make sure to take all the proper steps to get the job done right. Then, you can reap the rewards of profitable house flipping!
Step 1: Market Research
Before you buy, it is vital to perform thorough market research. Find neighborhoods where it makes sense to purchase. Look at resale rates of similar houses that are in good condition to understand what yours might be worth when it is fully renovated and ready to list. Look at the average time it takes to sell make your investment based on location.
Step 2: Set Your Business Plan
From the overall budget (including purchase price and renovation expenses) to your general business plan, you have to have a plan in place if you want to be successful. Think through every step and every detail before you start. This will help you be more prepared for the experience and get a better return on investment (ROI) when all is said and done.
Step 3: Figure Out Your Financing
Long before you commit to buying a house you intend to flip, get your financing in order first. Are you paying cash, being backed by investors, using a line of credit or taking out a loan? Don’t make any big moves until you know how you are going to pay for the purchase of the investment property, as well as the renovations and selling costs.
Step 4: Find a Good Contractor
Again, before you start your property search, you should talk with contractors and find out who you are going to be working with during the renovation phase. Find someone who is knowledgeable about house flipping and can provide you with helpful guidance along the way. Look for a contractor within your budget and who you trust to get the work done in a timely manner. The last thing you want is to be stuck with someone who costs you more money and takes more time than expected!
Step 5: Find the Right House
Now that all your ducks are in a row with your business plan, finances and contractor, you can start looking for the right house. Look beyond the normal avenues like the MLS, where you aren’t likely to find deals. Search for off-market deals or join a home buying network like PropertyLark to streamline your home search and house flipping process.
Step 6: Run the Analytics
It’s very important to run thorough analytics on any house you are considering purchasing for a fix and flip investment. Analyze the purchase price, renovation costs and resale value potential in the specific neighborhood. Don’t jump blindly into a huge investment like this. Look before you leap and do the work upfront to avoid disasters.
Step 7: Figure Out the Renovation Plan
Before you commit to buying any house, come up with at least a basic renovation plan first. Know what you plan to fix up and how you would like to refurbish this specific property. This can help you determine a more precise budget for this project and decide if it’s worth the investment.
Step 8: Buy the House
You’ve done your homework and found the perfect house to buy. Now you must buy it. Do what you can to negotiate the best price to leave as much profit on the table as possible by the time you renovate and sell it. Don’t let your emotions get the best of you. Buying an investment property isn’t like buying your personal dream house. It is strictly a business transaction. You are in it to make money. If it doesn’t make dollars, it doesn’t make sense!
Step 9: Renovate the House
This is the fun—but also stressful—part. You have the house in hand and you need to go through the renovation process. If you have a plan in place, follow it carefully and stay on budget as much as you can. You do always have to expect the unexpected with house flips and renovations, so be prepared for some surprises and build a little cushion into your budget to deal with construction delays or unexpected problems.
Last but not least, it comes time to sell the house after you’ve completed the renovation. Don’t just settle for the first offer. Take the time to stage it and get it properly listed and marketed on the open market. You may have bought it off-market, but your best resale option will be a traditional sale. This may mean hiring a real estate agent, home stager and other professionals to represent the property and get you the best ROI when it eventually sells.
This is a basic step-by-step guide to house flipping. For a more detailed plan, sign up and download our special e-book entitled “10 Steps for Developing a Successful Real Estate Investment Plan.” You should also consider joining the PropertyLark home buying network for access to great off-market deals, custom analytics tools and other helpful real estate investment resources.