Everyone is familiar with the home improvement shows on TV with the personable couple who buys a forlorn house, turns it into something beautiful and sells it for profit within a few months.
The reality of this is, that it’s not as easy as it looks. People make money off of flipping houses every day, but the secret to that success starts with really knowing what you’re doing. Finding a good house to flip is much harder now because the market is so strong for bargain-priced homes.
You need to start by finding a house to flip that makes economic sense, and this task is difficult. You are in direct competition with retail buyers because they are buying the ugly houses as there is nothing else.
Another big key to success when it comes to flipping a house the right way is accurately estimating both cost and timeline. There will always be surprises along the way, of course, you still need to calculate the true cost of getting the property ready for sale. This includes purchase price, repair costs, marketing expenses and carrying costs, such as mortgage, insurance, and utility payments.
You must understand the construction and issues faced by older houses so you can make the most accurate estimate. You don’t know what lies behind the walls of the house you decide on whether its mold, asbestos, water damage, antiquated electrical lines, foundation issues or crumbling pipelines.
Below are secrets of successful flippers.
Buy at the right price. Make sure to not buy the house for the full retail price, you will need to buy below it to have money left over to spend on improvements and make a profit. You want a house to which you can add value and sell for more than you spend.
Access to cash. A traditional lender will want at least 25 percent down and also have the best rate. However, a hard-money lender, who gives a short-term mortgage based upon the value of the asset, may not care about your credit and will lend enough to buy and rehab, but he or she will charge 10 to 15 percent interest or more. You could get lucky and find a private lender who trusts you enough to give you a loan for acquisitions and repair costs at a reasonable rate, but that often takes a track record unless you have relatives with money.