House renovating has become one of the biggest markets in the past few years. Just turn on HGTV and you’ll see by the wide variety of shows that it’s a market that is still steadily growing. With all of the inspirations and examples on TV, it’s no surprise that “house flipping” has become more and more common over the past few years as well. Homeowners are ready to take the examples they’ve seen on HGTV and turn the run-down house next door into a gorgeous new home that they can sell for a big profit. If you’re interested in investing in house flipping, there’s a lot you need to know to be prepared ahead of time. Here is a basic guide on all you need to know about the best way to buy and flip a house.
What Is “House Flipping”?
“House flipping” is a term used to describe the process of purchasing a property, renovating, and then selling it for more than was invested in it. Generally, the home is purchased purely to be renovated and resold, and the “flipper” doesn’t even live there. However, it has become more common now for people to buy a home and live there while they renovate so as to save themselves paying a mortgage on two homes. The goal is usually to buy low and then sell high, within months or a year of purchasing the property.
The Pros And Cons Of House Flipping
For people who have the skills and tools necessary to quickly flip a home, house flipping can be an extremely lucrative source of income. However, there are also serious risks or cons to consider when investing in house flipping. The best way to buy and flip a house is to be prepared ahead of time for the big decision you’re making. Here are the most common pros and cons of flipping a house.
- Depending on the current real estate market, you could make some serious money flipping a home.
- The best way to buy and flip a house is to be prepared ahead of time. If you have the tools and skills necessary to do home renovations, you’ll save yourself a lot of money paying for professional labor and could even get the job done faster.
- House flipping can be a full-time job or a side job as you work somewhere else. It’s flexible as there are generally no set in stone timelines or due dates.
- Renovating a run-down home can have a big impact on the value of the neighborhood.
- You never know when unexpected issues will arise. These could become very costly problems and quickly become a large financial loss.
- If you don’t have a deep savings account or pool of funds to draw from when you start, you won’t be able to increase the value as much on the home, which means you won’t get as large a profit from the sale, and the sale could be more difficult.
- Depending on the renovations you make and the location of the house, you could have a hard time selling, which means you would be stuck paying for two mortgages for a longer time than you anticipated.
- Once you have renovated and fixed up a property, the city could increase your property taxes. This would mean that while you are waiting to sell the home, you’ll end up spending more money.
What To Consider Before Investing In House Flipping
Besides the basic pros and cons of flipping a house, there are a few other things you should consider about yourself and your connections. More than 30% of remodeling jobs include the entire home, so you’ll need to be prepared for a big project. A common mistake people make when they go into a house flipping project is thinking they can handle it on their own or with a few friends there to help. The best way to buy and flip a house is to do so with the right team. Whether that’s rounding up friends with handy skills, such as electrical installation or landscaping abilities, find the people that will help you have the most success.
You will also need to consider your financial situation before you jump into a house flipping investment. The best way to buy and flip a house is to do so with cash savings, to save yourself getting into debt or paying more due to interest. However, most people don’t have enough savings to buy a house outright and will need the assistance of loans or lines of credit. There are quite a few options house flippers could consider; home equity loans, home equity lines of credit, personal loans, or even construction loans. Make sure you have done serious research to find the best option with the lowest interest rate and loan terms.
As you prepare to flip a home, you also need to think about home insurance. The last thing you want is to put your money into a project and then lose it if there is a disaster with the house. General homeowners insurance won’t cut it for a house flipping project. You will need a special type of insurance based on where you are in the project. You could look into a builder’s risk policy, vacant home insurance, liability insurance, or dwelling policy.
Finding A Property
Once you have decided that the pros outweigh the cons and you’re financially prepared to invest in house flipping, the next step is to actually find a property. This is another area where you shouldn’t jump right into a purchase. You need to take some time to watch trends and figure out how long they are listed, how many times prices are adjusted, and the size and area where the most demand tends to be. You may also consider networking with some local realtors to see what it is people are looking for, what features tend to be the biggest draw. Maybe it’s hardwood flooring, maybe it’s big windows letting in a lot of natural lighting. Knowing this will give you ideas on what elements to add during the renovation process.
Another great idea is to look for unique and desirable elements that already exist in houses. For example, an old house that’s been neglected but has beautiful bay windows can have a lot of potential. The key is to look for that potential. Typical home buyers won’t see it, but someone going into a purchase with the intent to make serious changes will.
The Renovation Process
Now to the fun part, the actual renovation. The mistake many house flippers make when they go into their first house flipping project is to overdo it. They go in “guns-a-blazing” ready to rip down everything and make an entirely new house. That passion is admirable but it will ultimately lead to stress and potentially less profit in the end. The best way to buy and flip a house and get the most profit is to not over-renovate. Only spend your money on upgrades that will add value to the home. For example, having plumbing services done will add great value to a home. The buyers will have the peace of mind in knowing there won’t be unseen issues there and you can list that on the house listing. Heated flooring in a bathroom is a fun feature to have, but ultimately it won’t sell a home. Your key is to add value to the house at the lowest cost to you.
If you’re wondering what the best projects are to get a high return on investment here are some you should consider:
A kitchen renovation is a project that will get you the highest return in investment and greatly increase the value of the house you’re flipping. The kitchen is one of the main focal points in a home, a place where friends and family gather, and homebuyers are looking for a space that fits that. It would be wise to focus your time on really transforming the kitchen space in the home you’re flipping.
If the kitchen comes with appliances already installed, make sure they’re in top working shape. You may consider hiring an appliance repair company to fix any issues. You may also consider replacing outdated appliances that don’t match the new look of the kitchen. When you’re trying to figure out the best way to buy and flip a house, focusing on the kitchen is crucial.
Replace Doors And Windows
Another important part of figuring out the best way to buy and flip a house is recognizing where you can make eco-friendly changes. Many homebuyers are looking for a way to have a positive impact on the environment and also save money on utilities. Installing new doors and windows that are environmentally friendly will add a lot of value to the house you’re flipping. You could also consider repairing any seals around windows or doors that are not working well. However, there are quite a few options you can consider for replacements.
If the house has a garage, don’t forget that door as well. House flippers can often forget the impact a good seal and working garage door can have on the look and functionality of the garage. Make sure to perform garage door services on the track and motor to ensure it’s working well. The last thing you want is a potential homebuyer to open the garage during a house tour and be met with loud clangs and squeaks from an old, un-oiled track.
Fix Major Systems
As you’re deciding on projects that will be well worth your time and money, don’t forget the major home systems. If a potential homebuyer looks at a house listing and sees that the HVAC system was recently replaced or repaired, that will add a lot of value in their eyes. Knowing that they won’t have to pay for HVAC maintenance or repairs shortly will draw them towards your house being a very viable option.
Add To The Curb Appeal
The curb appeal is extremely important when you’re figuring out the best way to buy and flip a house. It’s the first thing potential homebuyers will see when they look at a house listing or visit the home for a tour. As you work on renovating the home, make sure that you have really worked on fixing up the exterior of the home. From gutter cleaning to ensure there isn’t moss and leaves dirtying up the appearance, to a fresh coat of paint on the siding or shutters, even small changes can go a long way for the look of the house.
You should also put some time into improving the landscaping around the house. Plant some new shrubs or flowers around the perimeter of the home to liven it up. Ensure that shrub and tree maintenance has been performed to make everything look clean and well kept. You may also consider planting new sod or scattering grass seed around when you are at the start of the project so that bare spots can fill in over the months you are doing renovations.
Figuring out the best way to buy and flip a house can be a long process, not to mention the actual renovation and selling time. If you take the time to prepare ahead by considering the pros and cons, preparing your team and financials, and being meticulous about the renovation, you should be able to successfully flip the property you purchase. Best of luck to you as you flip your house.