House flipping describes the process of an investor purchasing a house, renovating it, and then selling it for a profit. It can be lucrative for anyone who does it well. When attempted not utilizing best practices, it can mean costly trial and error resulting in loss rather than profit.
The best way to avoid this is to study several tips and speak to people who already flip houses successfully. Below are several suggestions for anyone from those just starting with this type of investment to those who want to improve their game.
Understand That House Flipping Involves Risk
According to a 2016 survey conducted by RealtyTrac, people should aim for a minimum profit of 20 percent before committing to the idea of house flipping. RealtyTrac also stated that 28 percent of flipped homes sold for less than a 20 percent profit and 12 percent only broke even or lost money on the deal during 2016. Investors need to make at least 20 percent to cover their own expenses.
Buy Below Market Value to Minimize Expenses
Investors can reduce their initial financial output by purchasing a home listed as a short sale or one marked REO, which stands for real estate owned homes. These are better options than bidding on a foreclosed home at an auction. That is because buyers don’t always have the chance to see a foreclosed home or even to arrange a home inspection for it. However, investors can always see a home before purchase when going with a short sale or REO.
Location, Location, Location
Real estate agents say that only three things matter and all of them have to do with the location of the property. The area must be in high demand or investors could wait a long time to offload the renovated home. Some location factors to consider when choosing a home to flip include:
- Suburbs located just outside major cities
- Close to major attractions
- Area with a highly rated school district
- Metro areas with limited homes available for sale
- Neighborhoods obviously invested in improvement
- Positive employment trends
- Increasing number of real estate sales
Before making an offer on a home, investors should ensure they have an excellent credit rating and have a sizable amount of funds available for a down payment.
Choose the Right Type of Window for Renovation
House flippers will hear the terms retrofit and new construction when choosing windows to upgrade the property. Unfortunately, it is easy to make the wrong choice when they don’t understand what these terms mean. New construction windows don’t work well for a renovated property because someone must build them before or during the construction of a home. It requires a significant amount of skill and most house flippers must hire someone to create new construction windows.
Retrofit windows fit carefully into a pre-existing window frame. They make an attractive replacement for old, inefficient windows that may no longer be aesthetically pleasing. This is a far less expensive process because it only involves hiring a contractor to measure the existing window frame, remove the existing window, and replace it with a new one. Investors have several style options to choose from among retrofit windows to try to make the home as attractive as possible upon resale.