If you’re considering flipping a house, chances are you’ve watched a couple of HGTV episodes and figure the process is fairly straight forward. Buy a fixer-upper, give it some tender loving care and before you know it, you’ve made a sizeable chunk of change!
While the concept might seem simple, know that you aren’t necessarily guaranteed to turn that much of a profit – even if you’ve put a lot of money into the house. That being said, there is definitely money to be made in flipping homes, when done correctly. Here are some of our top tips for finding success:
Don’t skimp on location
Your goal is to sell this property fast once you’re done flipping it. Buy in an area that you know people want to live in, and avoid speculating about which neighbourhoods are up and coming, or buying in an undesirable location purely because of the low cost of the property.
Expect the unexpected
You don’t truly know a property until you start peeling away at its layers. Always mentally and financially prepare yourself for the unknown, whether that’s mold in the bathroom or a foundation in need of repair.
Your time is worth money
Keep in mind that all the time you spend communicating with contractors or doing the upgrade work yourself is valuable. That’s time you could be spending earning money elsewhere. It should be factored into your planning when deciding how much you’re willing to spend on a property, or sell it for once it’s flipped.
Have plenty of cash on hand
Many new investors get ahead of themselves and buy a property without a sizeable down payment or money in the bank for repairs. It’s a dangerous game to rack up repairs on credit cards and rely on the notion that your home will soon sell and pay everything off. If you’re not adequately financially prepared, you could be in over your head before you know it.
Work with a contractor you trust
Think of your contractor as your partner on this project. You’ll spend lots of time together and will be in constant communication. Their work directly contributes to the success of your flip, so be sure to work with someone you trust and that you know you can work efficiently with.
Follow the 70% rule
Experienced flippers follow the 70% rule when figuring out how much they want to spend on a house. The concept is that you should pay no more than 70% of the after-repair value of a property, then subtract the cost of your repairs. If the home is worth $200,000 and needs $30,000 in repairs, you should pay no more than $110,000 for it. ($200,00 x 0.70 = $140,000 – $30,000 = $110,000)
Stay neutral
Try not to let your emotions cloud your judgement when flipping a home. Your goal is to sell this property, not live in it – try to look at everything objectively and from a financial perspective!
Do you have additional questions about securing a mortgage to flip a home? Give us a call at 613-228-3888 today.