The Do's and Don'ts of Flipping a House
What does it mean to “flip a house?”
Flipping a house is buying a home with the intent to fix it up and then sell it again for a profit. Professional flippers will buy, fix, and sell as soon as their project is completed. They may even work on more than one house at a time.
Some flippers will occupy the home for two or more years to avoid taxes or to avoid paying a mortgage on another home. After they fix up the house, they sell it, make a profit, and move on to the next project.
Flipping houses is considered a “quick profit” strategy, especially when the housing market is doing well. Distressed, outdated, and foreclosed homes are attractive properties to flip.
What are the benefits of flipping houses?
The most obvious reason for flipping a house is to make money. House flipping can be a lucrative business and many people make an excellent living from it. You can make a significant return on your investment and in a relatively short period.
A second reason to flip a house is to gain valuable experience in investing, construction, and project management. Investment experience comes from researching and buying an ideal property. Construction experience comes from the work you do on the house, plus knowing what your contractors need to work on. Project management skills are obtained from working as a general contractor and managing the entire refurbishing process.
A third reason to flip a house is to benefit others. The house you fix up improves the neighborhood and increases the value of nearby homes. There is also the reward of seeing someone occupy your newly refurbished home, knowing you have created a lovely home for them.
Potential problems with flipping houses
Flipping for profit isn’t as easy as they make it appear on television. It is imperative that you know what you are doing before you attempt to flip a home. Some factors to consider are:
- The potential ROI
- Refurbishments important to potential buyers
- Level of finishes (granite, hardwoods, etc.)
- Market timing
Make sure you take all of these factors into consideration, especially your potential return on investment (ROI), which is the amount of return on your investment relative to the investment’s total cost.
What to avoid when flipping houses
Here are three examples of homes you may want to avoid when looking to flip a house:
- Homes on busy roads. While you may buy these properties at a great price, you’ll have trouble selling at a great price. The properties typically sell for a lower price.
- Homes that don’t fit in the neighborhood. For example, a large home in a neighborhood of small homes may bring a lesser price per square foot.
- Homes in a bad neighborhood. Avoid neighborhoods that have a higher rate of criminal activity, where dogs run loose, or where there are shady characters
What are the do’s and don’ts to flipping houses?
- Do be strict with your budget
- Don’t forget to make a plan (and stick to it closely)
- Do take into consideration potential unknowns
- Don’t become emotionally involved
- Do know all of your numbers
- Don’t pay too much for your investment
- Do get ready to work hard
Flipping a home is a business transaction. You need to get all of your numbers in order before you make your purchase and track all expenses throughout the project. Do not approach house flipping with a cavalier attitude.
Flipping houses in Rochester, MN
The primary factor to consider when flipping a home in the Rochester area is the local market. Know the neighborhoods well and find a highly qualified agent to help you. (Keep in mind that agents aren’t allowed to comment on neighborhoods.)
Use your agent to understand the local market. Ask how quickly homes are selling and at what prices. You will fail at flipping houses if you do not invest in a home with a decent resale potential. Make sure your margins justify your investment.