I’m usually talking about building houses, but we also have some experience remodeling and flipping houses. We mostly have stuck to building custom homes because in some respect it’s a little easier. One of the biggest challenges when flipping a house is making sure to not sink too much money into the home itself. When doing a custom home you have a little more flexibility on the spending.
Is a Flip House Really Profitable?
Some may ask if doing a flip house is even profitable or worth the time, money, and effort. From our experience, we would say it definitely is, if done properly.
Here are a few things you should do to help you make a profit:
- select a house in a good location
- get a good deal on the house
- stick to a timeline
- stay on a budget while still using high-quality materials
There are many more important factors to being profitable, but we feel these are the most important.
I will talk more in-depth about most of these things later one, but all of these play an important factor in how much money is to be made or if you will make any money at all!
Although the ultimate goal is to make money since this is our job, the most rewarding part of the process to us is seeing the end result. Not only does this include taking something from not so good to amazing, but hopefully finding buyers who will appreciate and love the home as much as we do.
There are several components and factors that we consider when buying and looking for a flip house. I thought it would be informative for me to share some of our knowledge about how we were successful in gaining a profit on our flip homes and how these factors come into play. That is the ultimate goal, right? The biggest thing to keep in mind while looking and buying is how you can make the home look most appealing with spending the least amount of money.
Location is the Key
One of the most important things in flipping a house is choosing the best location. You want to make sure you are in a neighborhood where people want to live. Do your research and see if the homes in the area go quickly. This will be a great factor in knowing if its popular among buyers.
Making sure the home is around a good school system is extremely important because more times than not the buyers will either have children or plan on having children in the future. Also, being around a good school system normally means less crime.
Sometimes you will need to pay a little more for a particular location, but this ins’t a bad thing. Paying a little more upfront may mean more money in the long run. If you do your research and buy in an area that is a little more pricey, the home will potentially sell for more and of course appraise up to whats around it.
Inspect the Property and Estimate Your Cost Upfront
Having an inspection is a must have before buying a flip house. This will allow you to see upfront problems that otherwise may not be seen. You may find out the house is a money pit and isn’t the right one for you. Or it could be a jewel and only need cosmetic updates which is the best kind of flip in our opinion.
Although, in most cases you will have some major repairs along with cosmetic. Knowing most of the problems upfront will make it much easier to do a budget and estimate your project cost. This is very important because you want to make sure you are making a decent profit.
Know and Choose the Updates Carefully
You probably have a good idea of what you are going to do with the property even before you buy it, but no matter what, choose your updates carefully.
This is very hard for me because I want to update the home exactly how I would do it if I was buying it. I still do choose high-quality items, but with more extensive research on finding sale items and getting more estimates in order to save money. I do often have to compromise on color or style, but I will never compromise on quality.
The most important thing is to consider is what updates will give the most drastic change cosmetically without spending a fortune. Hint, hint, a great one is painting the brick! Didn’t you know I would mention that.
And another one is the kitchen. Everybody wants a beautify and awesome kitchen. This one place where you will get the most bang for your buck.
Catherine & Bryan Williamson of Beginning in the Middle know what they are doing when it comes to renovating properties. Check out this kitchen before and after of a property they are currently working on.
DIY as Much as Possible
DIYing as many things as you can on the flip will be another great way to make more of a profit – especially things such as painting or any simple projects you already have experience with.
Another thing you could do yourself would be the demoing. If you don’t mind a little hard work this is for sure one everyone should be able to do. I mean who can’t rip up carpet and tear some sinks out, right? It would be a great way to destress!
From experience, a couple of places to where we have been able to save the most with DIYing is doing the landscaping and painting ourself. Both of these areas can feasibly be done without having much skill and will for sure save thousands. Not to mention, we enjoy the landscaping part, but maybe not the painting so much.
Be Your Own Realtor
Doing for sale by owner definitely has it perks and the biggest one is putting more money in your pocket. It also allows you to show your home only when its convenient for you. This means no unexpected guests when you are in the middle of cleaning it up or painting.
If you choose the right location, being your own realtor will actually be pretty easy, the house will pretty much sell itself. Also, if the house is very visible during the remodeling process, people will be intrigued and want to see it. It will also be the talk of the street, which means more lookers for you.
With a potential flip house, making a low offer is a good idea most of the time. I would hate to look back and think I could have gotten a house cheaper. I mean, if you don’t try, you will never know.
Now, this does require some research. You want to go in first knowing if the house is a hot item or not. If it is, I probably wouldn’t go too low. Most of the time others do not see the potential that you do, so it isn’t a problem. I would also research what the last sale price was of the house. This will help you determine how far off the asking price is.
Keep in mind you are not buying a home that is glamorous to others at this point, so chances are you may get a good deal. In some cases the owners just want to make a little or even just get our of it what they have in it.
How Can I Fund a Flip House?
Now we know there is money to be made in doing a flip house, but how can I get the money to do one? Not many people have thousands of dollars just lying around to use for another home. There are a few ways that might be possible for you to get your hands on some cash for this type of project.
If your home is paid for, one of the easiest ways to get cash pretty quickly is to get a home equity line of credit on your current home. Most banks will give you 80% of your home’s appraised value. From our experience with this type of loan, you will pay interest only on the dollar amount used. You then can turn around and pay off the loan as soon as you sell the flip house.
The great thing about a home equity line of credit is that most banks will allow you to have the credit as long as you live in your current home. This will free up cash if you want to do this again.
Another option is to get a loan from a family member or friend. This may be a little harder but could be a way for the family member or friend, better known as a business partner, to make some cash with you doing all the work. You would pay them interest and a percent at the end of the sale.