Real Expert Nick Statman shares his views on House Flipping: Flipping houses is much more than buying a home, slapping on a fresh coat of paint, trimming up the garden, and nailing a for sale sign in the garden. While some homes are easier to flip than others, there are a few basic things you need to know before you get started in this exciting and profitable property investment strategy.
Build The Right Team
Flipping houses is not something most people can do on their own unless you buy a property that is completely rent ready, you will likely need the advice and help of other industry experts to help you upgrade the property in a way that best maximizes your ROI. One of the first things you should do before diving into a house flipping project is to assemble a team of professionals. If you have the skills, tools, and knowledge to do a lot of the upgrades and renovations on the home yourself, you can save a lot of money by doing it on your own. However, if construction and design are not part of your skill-set, you’ll have to hire someone to do it for you. Your success in flipping houses depends significantly on the team of people you surround yourself with.
A successful house flipping team will include:
- Estate agents
- Insurance Brokers
To successfully flip a house, you must have the right team behind you. Take the time to create a powerful and knowledgeable team of industry leaders that you trust to help you take on this type of project. Flipping houses is often a race against the clock, so you don’t want to spend precious time looking for contractors or other professionals to help you do the things you cannot do yourself. With a trusted circle of experts, you will always have the help you need, just a phone call away.
Understand The Area
One of the goals of house-flipping is to take an existing property, upgrade it, and turn it into a home in which other people would want to live. However, it is essential to remember that you can completely upgrade and renovate a home with the most elegant finishes and most innovative appliances, but if the house is in an undesirable area, you will never truly maximize your ROI.
Just because you can afford an investment property does not mean you should buy it. Be very careful about the neighbourhoods and communities in which you choose to invest. Drive through the neighbourhood during the week, on the weekends, and in the evenings. Find out about local crime statistics, the local school district, and plans for building in the immediate area. All of these can significantly impact the value of an investment property.
Research current home values in the area, and find out if there are plans for expansion or construction within the next five years. Learn everything you can about the area and about the type of tenants that are primarily interested in the specific neighbourhood. When you know a lot about the area and the tenant demographics, you can flip a property to appeal to this type of tenant more effectively.
Expect The Unexpected
If this is your first time flipping a home, you’ve probably put a lot of thought into how much it’s going to cost, and how much you hope to get out of it in the end. One of the biggest mistakes house flippers make is underestimating the cost of this type of investment strategy. Along with the price of the home, you can expect to pay for other things such as:
- Replacing heating
- Replacing the windows
- Replacing the roof
- Unexpected repairs
- Marketing to sell
It is important to keep the 70% rule in mind when creating a house flipping budget. The 70% rule helps you determine how much you should spend on a property you are planning to flip. The rule states that you should pay no more than 70% of the after repair value (ARV), minus repair costs.
Here’s an example:
If a property’s ARV is £200,000, and it needs £20,000 in repairs, then the 70% Rule suggests that the most an investor should pay for it is £120,000
£200,000 x 70% = £140,000-£20,000 = £120,000
Always assume that a house flipping project, especially your first few, will cost more than you expect. If you leave room in the budget for these surprises upfront, it won’t become a financial hardship later on.
Brush Up On Your DIY Skills
While it is important to have a team of experts behind you during your house flipping process, it never hurts to learn how to do essential home repairs and maintenance on your own. You can save yourself a lot of money by learning how to do basic renovations such as installing sinks, tile work, and doing basic electrical or plumbing tasks. If you are not especially handy or skilled in DIY projects, keep this in mind when you choose a house to flip. If major renovation projects are not your strength, avoid houses that need significant renovations. Instead, choose investment properties that are basically rent ready or only need a few minor repairs that either you can do, or you can hire someone else to do. If flipping houses becomes something you do regularly, you will naturally begin to learn the ins-and-outs of construction, design, and architecture.
Flipping houses can be an exciting and lucrative investment strategy. When you build a team of experts, understand the local neighbourhoods, start with a realistic budget, and are willing to learn along the way, there is no limit to how successful you can be.
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