Have a Strategy
Create a business plan based on the following steps:
- Find a property.
- Calculate the cost of renovation.
- Set ROI goals.
- Determine the exit timeframe.
- Find financing.
Pick the Right Property
Find a property that is competitively priced in an attractive area and one, preferably one that only requires cosmetic updates instead of structural repairs. An ugly house can be turned around with simple and cheap cosmetic changes. A property with old windows, peeling paint, or shabby gardens is an easy fix.
The 70/30 Rule
The 70/30 rule states you should pay a purchase price of no more than 70% of the house’s resale value after repairs.
Buffer Your Budget
Be cautious. It is a newbie mistake to buy a fixer-upper, thinking you can save money, and then underestimate the cost of repairs. Assess the repairs you need to make before you resell the property and add 20% because even the most experienced renovator goes over budget. It is hard to get an exact quote for things like structural issues, HVAC installation or upgrades, or issues with asbestos or mold, so factor an overspend into your financial calculations.
Find Low-Cost Financing
Look for low-interest loans that can be paid off quickly. Investopedia recommends you seek hard financing. Hard finance companies will allow you to borrow money based on the resale amount of your house, so you can get a loan for the mortgage and repairs in one low-interest rate package. Because “hard money lenders decide whether to make the loan by evaluating the strength of the deal and the reliability of the home flipper,” come prepared with a business plan and strategy for your flip.
Get a Team in Place
Find a team of contractors that are reliable, trustworthy, and reasonably priced. To find a good contractor, get recommendations from your network or look at properties that have been renovated in your area and connect with the contractors who made them. When hiring, ask to see samples of previous work and always phone references.
Use Smart Systems
Managing teams of employees and contractors can be time-consuming, so consider automating some processes. Use scheduling systems to keep you on top of your appointments and project timeline. Also, invest in an accounting system that can automate payroll and help you keep stay on top of your budget. Explore Numbercraft’s service packages here.
The faster you can flip your house, the more you will earn. Don’t overthink decisions and stay objective. Market the house as soon as you can for a quick sale, and give estate agents a head’s up that the house will come on the market shortly.
Have an Exit Strategy
Every home flipper should have an exit strategy in place in the event that something goes wrong and you find yourself in over your head:
- Cut your losses: Legal Wiz advises that you cut your losses and sell. They believe that “too many investors let their ego get in the way and hold on longer than they should and the bleeding never stops.”
- Buy and hold: If you run out of money to make repairs but the house is habitable, you could lease the property for the short term until you have enough saved up to finish the repairs and sell the property.
If you are a senior, you could consider investing some of your retirement capital into flipping houses. House flipping can be profitable but it needs careful planning and the ability to remain objective. Before you take out a hefty loan or invest your hard-earned money, seek advice from experts and always exercise caution.