What to Know Before Flipping Your First House
I was walking into my house today and my neighbor stopped me. He said "my company wants to start flipping houses...Can you help?" I get this question a lot and my response is always "what makes you want to do that?" I ask this not because I think the idea is crazy, but because I think the majority of people like the idea of flipping a house 1000% more than they actually like flipping houses.
My personal opinion is that it's not all "Tarek and Christina" once you're actually out there investing your own money to renovate a home...... You wouldn't watch a couple of tv programs on the glorious life of stock trading and all of a sudden invest $300,000 of your own money in something you thought would be fun to do....Why would you do that with the purchase of a home? You probably wouldn't if the thought of a perfectly placed cement tile and custom painted island didn't really get your inner Joanna Gaines juices flowing....
If you've read this far and still think you're in for the count, keep reading below for my tips on how to flip a house.....I in no way post this to discourage you from getting into the flipping business. My hope is that if you do so, you learn from my trials and errors and take something away from what I've learned over the past couple of years.
Market Knowledge: is the "LOCATION LOCATION LOCATION" rule of thumb of flipping. Choose a market or choose a realtor who already knows a market and studies. Market knowledge can be the difference between making and breaking and is really the key to running a profitable flipping business. 80% of our buyers and sellers sit in the Scottsdale market. I show houses all day to people who are looking to buy in Scottsdale and hear their feedback from every single house we look at. I list houses in Scottsdale and see what sits on the market and what flies off the shelf. If you tell me an address in South Scottsdale, I probably know what streets it sits between and the layout of the home..... Scottsdale is my market and I still would say there's a lot for me to learn.
Expanding on ^^^^.... KNOW YOUR MARKET: in more ways than one. Maybe you know a market from a realtor's standpoint but lack knowledge from an investment standpoint. Maybe you know comps but don't know the concerns that come along with the investment side. If you think you know a market, study more.
Find a Contractor You Trust: My choice in contractors has been the difference between making money and losing money. For bigger projects find someone licensed who does quality work. There have been plenty of times I have worked with someone who gave me a cheaper bid and ended up having to pay the more expensive person to fix their work.
Start to Learn The Construction Business: I find that it's hard to flip a house if you don't know the basics of construction costs. Start learning what the average price per square foot to lay tile is or what a new roof costs. Little by little you can learn how to gauge what a renovation will cost and can start to use what you know to compare to what you're buying.
Plan For The Worst: If you think your project is going to take 8 weeks, it's probably going to take 10. If you think your budget is $35,000, plan on 45,000. If your numbers only work for the best case scenario you probably should rethink.
Comp Correctly: I think people use sq ft as a comp and overlook a lot of other important factors. Here's an example... You have a 1,500 sq ft house with a 500 sq ft bonus room addition and comp it to a house that has been re-built with a large master suite and smooth flowing additions. Where is your sq ft and how is it being used? Does it feel like an afterthought or does it feel like it was all part of the master plan. Check master bed/bath, kitchens, number of bedrooms, ceiling height, closets and laundry rooms when comping sq ft.
Do Your Due Diligence Before Buying: Do an inspection. measure square footage. Is the home in a flood zone? Will it qualify for financing once you're done? Is the home on leased land? What issues are houses built in that year having? What are they building around the home? There are so many things that can come up that are beyond what the eye can see. Make sure you check those too.
Have a Backup Plan: What will you do if the home doesn't sell? Can you rent it out? Can you qualify for a mortgage and hold onto it? I try to always have a back up plan in case s&%t hits the fan.
That's all I've got for tonight. Feel free to click the link below to sign up for my weekly newsletter to receive more information on all your real estate needs!
