Do you want to learn how to make a lot of money flipping houses?
Come join the club. Home flipping has become more popular throughout the country. The number of home flips in 2019 is expected to be close to 246,000. That’s more than 6% of all house sales, the highest level in more than a decade.
It’s easy to see why it’s so attractive just watching an episode of any popular house-flipping program.
However, the reality can be a bit more complicated, especially for the uninitiated. Keep on reading for our full breakdown of what home remodeling and home flipping entails, specifically through a financial lens.
What Is Home Flipping?
Let’s cover our bases.
When a real estate investor buys a home and then sells it for a profit, this is known as house flipping. A home must be purchased with the purpose of rapidly reselling it to be called a flip.
The period between purchase and selling may be anything from a few months to a year.
House flipping may be divided into two categories.
A property that has the potential to grow in value with the appropriate repairs and upgrades is purchased by an investor.
They profit from the sale of the house for a considerably greater price than they paid for it once the renovation is completed.
In a market where house prices are quickly increasing, an investor purchases a property. They don’t make any improvements, and after a few months of owning the property, they resell at a higher price and profit.
We’ll concentrate on the first definition of home flipping and provide you with advice on how to select a property, renovate it, and sell it effectively.
You can check this list of abandoned homes for sale if you want to get a better look at what the market has to offer.
The Process of Home Remodelling Investment
Home flipping and gaining a high ROI from the sale can be more of an art than a science. However, there are basic strategies that the majority of successful real estate investors tend to follow.
If you’re new to the market, here is what you need to know.
Use Cash to Fund the House Flip
House flipping is a hazardous business, and it’s simple to understand how adding debt to the mix makes it much worse.
Here’s why we always suggest flipping a home for cash.
No Interest Charges
Home flippers who borrow funds may have to pay interest for months.
This can lead to a price increase at which they must sell the house simply to break even.
No Hurry to Sell
When you utilize debt to fund a flip, you risk seeming desperate. If you can’t sell the home, you’ll have to reduce the price and lose money.
Cash-only home flippers can wait out a sluggish market since interest payments aren’t accruing against them each day the property remains unsold.
Most significantly, using debt to make any sort of “investment” is a bad idea. Period. Even with cash, trying to sell a flipped home for more money than you put into it is a gamble. Using debt in the process increases your chances of losing money if anything goes wrong.
Consider the following scenario to illustrate why utilizing debt to flip a home isn’t a good idea: You take out a $130,000 loan to buy a home to flip. You borrow an extra $30,000 for improvements in the hopes of reselling the home for $200,000 and profiting handsomely. Isn’t it a fantastic plan?
Everything seems to be going swimmingly until an unforeseen repair costs an additional $2,000 to fix. Then, instead of four months, renovations take six months, costing you an additional $3,000. When you advertise the house, it sits on the market for a month until you’re compelled to lower the price to $185,000 and sell it.
You close a month later and get your payment. However, a large portion of your payment will be used to repay the money you borrowed plus eight months of interest. That’s on top of the typical selling expenses like commissions, taxes, and title fees.
Create an Appropriate Budget for Renovations
Don’t put off making a budget until after you’ve purchased an investment property. Before you sign a contract, determine your budget range for buying a house, making any repairs, finishing remodeling projects, and paying closing fees.
Make a note of any aesthetic tasks as well as any major repairs, such as plumbing or electrical issues.
A contractor can tell you what has to be fixed and how much it will cost if you don’t have any experience with building. Surprise repairs may make or break a flip, so do your research ahead of time.
Get a house inspection and any other particular inspections you may require after you’re under contract. It’s usually preferable to catch issues early on than to be caught off guard later.
Put Funds Into Smart Renovations
Your renovations may easily spiral out of control if you have visions of shining hardwood floors, on-trend light fixtures, and beautiful kitchens with professional-grade stoves.
That’s why it’s crucial to know your budget upfront so you can remain on track with your renovations and increase the value of your house.
Remember that major improvements, such as kitchens and bathrooms, may make or break your flip.
While you may spend a lot of money on a flip, don’t overlook the importance of minor changes. A new coat of paint, updated hardware, and new landscaping may all make a big difference.
Increasing Home Value: Clear and Simple
The wide world of real estate investment can look overwhelming to anyone dipping their toes in for the first time.
Yet, there’s no denying that taking the risk and putting in the effort to learn is more than worth it. Just take a look at the average ROIs.
We hope that our guide has shed some light on how home flipping works. And, if you liked reading our article, then you’ll love checking out our additional tips and strategies. All of those (and much more) will be available in our business section.