Buying an old home out of foreclosure and selling for profit – “house flipping” – sounds romantic and can sometimes be profitable. However, investor “house flipping” can also involve mistakes, failure and losing money.
There are some basic concepts to keep in mind when buying and “houjse flipping”.
Purchase the Right Property
You need to focus on extremely well-priced homes that are in good structural shape but are in need of updating and cosmetic repairs. These are your classic “ugly homes” in good neighborhoods. They should be in a desirable area for location and schools. The best properties would make good rentals if the housing market is down and you need to cover the payment.
Rough and tumble markets exist for these investor opportunity properties, especially in Southern California, where other investors will be out looking and providing big competition.
Have Cash Available
Be prepared to put 20 percent down or more to buy one of these investor properties.
Though you might be able to get low-down-payment government loans, such as FHA and VA loans, those are designed for owner-occupant properties. If you buy such a property for flippng and use FHA or VA, you would be committing loan fraud.
You as “investor house flipper” will probably have to pay for all repairs and materials, along with the mortgage until you sell the house, requiring even more cash.
Get Information and Be Smart
If you do not have a trained eye for identifying problems in a house, you will need to rely on the services of a professional inspector or appraiser.
Many poorly maintained homes have problems other than just cosmetic ones. Foundation problems, water damage, mold and major systems failure are costly, time-consuming fixes that eat up profit quickly if not factored considered in the budget.
Identify the Right Repairs
When flipping houses, you need to identify the mandatory repairs that will give the biggest bang for the buck and can be completed in a profitable manner without going cheap with materials or labor.
You must know what home buyers in that neighborhood want and expect to see, and use that mindset to determine the repairs you will make and your budget. Don’t renovate a home into the most expensive one in the neighborhood if you want to maximize profit.
Use Your Hammer and Tool Box
The best flippers save money on labor by doing some of the work themselves. You would need prior experience on repairs or be willing to learn. If your project is cheap and poorly done, your property will look bad and disappoint the buyers. Be careful about hiring a trusted contractor.
By Harrison K. Long – Professional real estate representative, REALTOR and broker associate, HomeSmart Evergreen Realty – 949-701-2515 (phone) – ExploreProperties@gmail.com – CALBRE #01410855 – Now serving as an appointed director at the California Association of Realtors – also an attorney member of the California State Bar association #69137