To Flip or Not to Flip – Is Real Estate Investing for You?
Have you been toying with the notion of house flipping? They sure make it look easy on television. Doesn’t seem to be much to it. You buy a rundown house, fix it up and whammo! You strike gold and get your own tv show. Eh… Not so fast. Before you set out on becoming the next real estate magnate, you need to make sure you are aware of all the risks, because there may not always be a reward at the end. Plus, if you’re a novice when it comes to real estate, this may not be the best investment strategy for you.
For example, you don’t want to pay more than you should for a home, before sinking additional funds into getting it ready to sell. A good strategy for flippers to follow is the 70% rule. In the simplest terms, you should not pay more than 70% of the after repair value of a property minus repairs.
So let’s say you spot a home on the market for $175,000, but after looking around, it needs about $35,000 worth of repairs. The 70% rule would look like this, $175,000 x 0.70 = $122,500 -$35,000 = $87,500. Meaning, you should not pay more than $87,500 for the home. Hopefully, you have some stellar negotiating skills.
Still with us? Here are the top five considerations you should make when deciding to flip or not to flip.
The Monetary Expense
Dabbling in the market can be costly. You’ll need funds to purchase the property, and then you will need cash to fix it up. Make sure you have researched all your options wisely.
The Time Cost
Finding and buying a house is typically not a speedy process. And neither is fixing one up. If you don’t have the time required to research contractors, oversee the renovations and then schedule subsequent inspections to make sure the home is up to snuff, you may want to reconsider flipping.
The Skills Required
If you aren’t handy with a hammer, then you will have to pay someone. And once you start doing that, you are dipping into your profits. The money is in how much of the work you can do yourself. If you don’t know how to handle a power tool, you can dramatically reduce how much money you will make back on your investment.
The Market Knowledge
To be a successful flipper, you really must know how the market works and neighborhood trends to look for. You’ll also need to know which renovations to make and which to skip. In addition to a working knowledge of the applicable tax laws and zoning laws and be wise enough to know it’s time to cut your losses and get out before you end up in the poor house.
The Patience Involved
From searching for the right property to hiring a trustworthy contractor back to putting the house on the market, flipping is a waiting game. Rushing through the steps could cost you big in the end, and if you aren’t one for letting things simmer, you may want to try a different investment.
If you are ready to put your real estate prowess to the test, consider partnering with a real estate advisor like the Minteer Team. Their experience and market know-how will help you navigate the uncertainty of the market and guide you along making the best decisions possible for a successful venture.