House flipping is one of the most popular investment trends of the decade, largely made popular by televised designers and realtors teaming up to make a huge profit on an old house that’s been transformed. The shows make it seem so easy, but in reality, it’s a lot more complicated. If you want to get into house flipping, here are four key components of success.
Qualify for Financing
You can’t begin a house flip journey if you don’t have your financing in place, although it’s one of the most difficult parts, especially if you have hefty debt, bad credit, or other marks on your financial history.
If you’re planning to live in the home you’re flipping, a conventional mortgage is a good option, but doing so makes it difficult to get the financing you need for the renovations. You’ll also need a significant chunk of money for a down payment, which makes it difficult to get started.
There are alternative financing options for flippers who want to turn this into a business, such as hard-money lenders (who will lend to basically anyone but with high-interest rates), portfolio lenders (such as those from a small local bank), and private investors. It’s difficult to find these types of financing, and the interest rates are usually high, so you need a solid plan to ensure a quick turnaround on your properties.
Steve Udelson, president of an online real estate venture, recommends talking to your mortgage lender about alternative financing recommendations. “If you get with a very good mortgage broker… they may introduce you to lenders who have some unique programs,” he said to US News.
Find a Home with Good Bones
After you’ve secured financing, you can start your house search. You want to find a great deal on a property so that you can increase the value and sell it for a profit. You can find real estate options through a variety of means, including wholesaling, auctions, and foreclosures.
The most important thing is to find a house that doesn’t need a ton of structural updates. You might be able to fix the roof or replace the siding on the house, but if you have too many big-ticket repairs alongside interior renovations, you’ll have a difficult time making a profit.
You also need a home in a good location so that the market value will stay high. “Expert house flippers can’t stress this enough,” says Heather Levin of Money Crashers. “Find a home in a desirable neighborhood, or in a city where people want to live.” This makes the resale portion of your flip much easier.
Invest Money Strategically
You can’t dump money into a house flip without a strategy. Some renovations will recoup far more value than others. First and foremost, invest your money in structural components that add market value, such as siding, roofing, windows, foundation repairs, HVAC replacements, and other key areas of improvement. These tend to recoup the most value.
Next, know what homebuyers are looking for. They want glamourous kitchens, luxurious bathrooms, and spacious rooms with character. Investing in these areas will appeal to buyers and make it easier to sell.
Another priority is storage space. Look for opportunities to increase bedroom closet space, add shelving or hall closets, and expand kitchen space. Many of these storage additions can be performed as DIY projects without the help of a professional contractor, saving you money and significantly increasing the value of your home.
Finally, focus on details like paint, new fixtures, crown molding, and other small updates that will make an old house look brand new. As long as you’re spending money on lucrative ventures, you’ll get a higher return.
Get More Experience
Your first house flip might be successful, but you won’t get a good feel for the business until you’ve gained some experience. You’ll make plenty of mistakes and have plenty of successes, both of which will teach you valuable lessons of the trade. The more houses you flip, the more you’ll learn about the business.
The best way to get experience is to jump in, but if you’re not ready to take the risk just yet, there are a few ways to develop experience. Start by immersing yourself in the real estate business. You might get your license or simply shadow other realtors.
You could also contact a seasoned investor, bring them a great opportunity to flip a house, and then shadow their efforts. You’ll see their strategies in action and ask a few questions along the way. It’s a valuable learning period that will help you build the confidence to start your own flips.
The more experience you gain, the more confident you’ll become in this business. With time, it has the potential to be more than just a side business; it could double or triple your income. If this is something you’re excited about, it can be done successfully, as long as you have the right tools and experience.