How to start flipping houses
Forget the concept of the easy man’s way to riches is through flipping a house. The first of my house flipping tips is to realize that it’s going to take a whole lot of work – especially research – to be able to make any profit when house flipping. You should begin by knowing every fixer-upper that is on the market in your local area that you plan to do your property investing. That means not simply combing through Zillow or Trulia for all available houses on the market in your area. It means you must actually tour each and every one that is a viable candidate for your house flip dollars. Make sure you work with one local real estate agent exclusively. They can greatly aid you in setting up automatic searches on their local Multiple Listing Services (MLS) that will generate possible investment flips daily for you to explore.
While many property investors approach this casually, you should take it quite seriously. Pick a day of the week to be able to tour all the houses that just came on the market that week, that are in dire need of repair. It is these fixer-uppers, where you can invest renovation dollars to earn you profits that you’ll need to zero in on. If possible, and your work schedule allows it, be able to visit immediately new additions to the market that represent tremendous profit potential. Either they are undervalued, or need work that is modest, but will yield high returns for your investment money. Naturally, you also need to do your homework on what similar properties to the house you’re considering flipping are selling for of late (within the last 6 to 12 months only). This is known as knowing the “comps,” or comparable properties. As before, use your real estate agent to help guide you in your research here.
Flipping houses with no money down
As I mentioned above, trying to flip a house with no money down will require even more of your time to locate the truly desperate properties on the market that are ripe for flipping. You may find, at best, ten percent of all fixer-uppers where the seller is offering some amount of owner-financing. But usually, they will also require a hefty down payment from you. It is incredibly rare to find a seller who throws all caution to the wind, and offers 100% seller-financing. That’s just plain stupid. In essence, you’ll need a great deal of luck to be in an area where you’ll find such a seller. And even if you do find him, there’s still the renovation costs that will need to be financed. You might be able to get a home improvement loan to do so – but just be aware that flipping houses with no money can lead to financial ruin very quickly, should you make even the slightest error in calculating the work to be done and/or the returns expected on your property, once you place it back on the market post-renovation.
Also, be aware of recent trends in the house flipping business. According to the latest article “Flipping Trends” (by Matt Lemmon in ZBuyerconnect.com, 8/14/15), the author notes that a story “from CNBC points out that latter-day flippers have a tougher time getting loans than they did eight or ten years ago, when banks gave them out like candy. Furthermore, the gradual clearing of low-priced, underpriced and foreclosed homes on the market mean investors wanting to flip – who can’t pay cash – are needing more cash to do it.”
Greater profits today
The author goes on to make the point that in today’s house flipping world, with fewer smaller players in the marketplace due to the tighter money situation from banks and these tougher lending policies, the average flip profit has been on the rise. He notes that “home flips made up just 4.5 percent of sales in the second quarter of this year, according to RealtyTrac, down from 4.9 percent a year ago. Flipping returns, however, the gross return on investment, increased to nearly 36 percent, up from 24 percent one year ago. Further, the amount of work going into flips is going up, as well. Smaller, lower-priced homes are seeing negative returns, while the more desirable flipped homes on the market needed far more work than most homes did during flipping’s heyday. The sweet spot, the article says, was for homes purchased at $100,000-$200,000, which returned an average of 44 percent.”
His main point? He sums it up succinctly, saying that “rules for successful flipping haven’t changed: Investors must know their local market. They need to buy right (i.e., low), price rehab costs conservatively and correctly, and choose the right comps in order to accurately predict exit timing and price.” In other words, do your homework – or you’ll end up making a bad buy.
photos courtesy of fixandflipnetwork.com, barnettassociates.net, cbsnews.com, home.howstuffworks.com, sandiegohomebuys.net