Should You “Flip” Houses?
Flipping houses is hotter than ever right now. Through the magic of TV, it looks easy and highly profitable…and it can be, if you know what you’re doing. The shows on TV make it look easy and somewhat instant. However, flipping is a full-time job in itself. If you’re considering a flip, think about all aspects of flipping, not just the “fun” stuff.
The basic concept of a flip is “buy low, sell high,” so you’ll need to dedicate time to finding the right house. Not every house is a flip candidate (no matter how Ahhhmazing it is) and it takes time to locate a property to renovate with enough room for a profit. My best advice is that once you find it, put an offer on it immediately. (That advice is true for any purchase, but especially a flip, as other investors are likely offering on it as well.) A valued member of your “dream team” will be your REALTOR®. Work with your REALTOR® and base your budget off of the lowest after repair value that your finished flip will return. (I call this the “fire sale price”…the lowest price you know you can sell it quickly, if needed. If you base your remodeling budget on the “fire sale” price you will have a built-in cushion if the market takes a turn or if there is a big ticket surprise during remodel.) Always assume the worst and be pleasantly surprised with anything better. No matter how much you improve the property, it still has to appraise, so budgeting off of the lowest projected value is the safest bet.
Most flips are purchased “low” because the property is in disrepair. In order to sell “high,” the property must be in A+ condition. That means it’s time to gather the dream team. It is very difficult to complete a full flip by yourself. It is possible to DIY some things, but the work must be done quickly and professionally to maximize profits, so paying to have work completed fast is often cheaper than the DIY option. Certain work may require licensed contractors to complete, so know who to call when you’ve got a problem.
You need to have cash resources to tackle the rehab of the property…or a very healthy line of credit. Taking on a flip house requires planning—and unfortunately, some of the planning is prepping for the unknown. There will undoubtedly be at least one surprise—some wiring will need to be updated, a section of subfloor will end up being rotten or termites will show up to crash the house party. Something will happen, just plan for it. Time is money and the spending won’t stop until the property sells. During the flip, you must cover the costs of the remodel, utilities, property insurance and taxes, and any other related property costs. In flipping there are no good surprises, so do your homework on the known expenses and leave a cushion for the unknowns to help minimize the risk.
Flipping has a big learning curve—each one will garner more knowledge and better contacts than the last. The biggest takeaway is to stick to your budget. Budget as much as you can for the unforeseen and keep your profit margin reasonable. Flips can be rewarding (not just monetarily)—there is something just downright awesome about making a house pretty again. Just remember that flipping is work—and unfortunately, the houses don’t flip themselves.
Lisa E. Priest is flipping out and is an East Texas REALTOR® with Picket Fence Realty, Inc. You can reach her via phone or text at 903-948-3343 or read more at BuyPalestine.com.