According to RealtyTrac, investors bought and flipped about 156,862 homes in 2013. You’ve probably spotted some of the shows on television of people buying houses, fixing them up and reselling them for a big profit. Shows like Flip or Flop and Rehab Addict make the process look fairly painless. Flipping houses may look easy on TV, but should you risk it?
Know What You’re Getting Into
Before you invest in a fixer upper, make sure you have the support system you’ll need to get the house in move-in ready condition. Finding a contractor who does quality work for a price you can afford can be a challenge, for example. Before trying to buy and flip houses, be aware of:
- Interest costs. If you are borrowing money, you’ll have monthly interest costs, which can really add up.
- The unexpected will happen. You’ll run into an issue that needs fixed, a contractor who runs off with part of your money, a delay in your schedule. Plan a contingency for the unexpected.
- The house might not sell immediately. You might make the house look beautiful and it will still sit on the market a while. What will you do if the house doesn’t sell immediately?
- You’ll need cash to buy a bank foreclosure at auction. Because foreclosed homes often do need repairs, you’ll have a hard time securing a loan for such a purchase. Do you have investors? Can you get a personal loan instead? How much will that cost you?
Consult with a Professional Who Knows the Market
If you understand the risks involved, you’ll want to team up with a real estate professional who knows the market well. You need to know which homes are at a good purchase price, how much the house will be with after repairs and how much similar homes in the area are selling for.
The right real estate professional will help you list your home and give advice on how to price it and stage it to sell it more quickly. When it comes to flipping homes, fixing them up and reselling them quickly can often mean the difference between a decent profit and only breaking even.
Have a Backup Plan
Even if you do everything right, the house might take a long time to sell or you might run into trouble. You should have a backup plan and know what you’re going to do if the house doesn’t sell in the time frame you want or for the amount you want.
What is the absolute minimum to break even? Do you have investors? What kind of return do they expect on their investment? Or will they front you for a few houses until you really get the hang of things?
If you are interested in flipping houses, consult with real estate professionals such as Daniel & Bonnie Wan to find out what your options are to buy a fixer upper and then list it for sale once it is repaired and updated.