Flipping Your First House- Where Do I Start???

What's the hardest part about flipping your first house???

....Deciding to pull the trigger!  As a full time real estate agent and investor, I get to work with a lot of first time home buyers, would be flippers, and would be investors and I can tell you that the biggest thing that keeps most people from deciding to make take on that first flip or rehab is FEAR! Not lack of money, not lack of knowledge, but fear of the unknown and the potential risk involved with taking on this kind of investment.  

It's true. Flipping houses can be risky if you don't know what you're doing. The good news is we have access to loads of information to help us figure out what we are doing...which is why we find ourselves on biggerpockets!  

So where do we start?  

The first advice I would give anyone who's just starting out is to educate yourself on 5 levels:  

1.  Educate yourself on what a good deal looks like financially. There's numerous books, blogs, and podcasts that go over this in great detail. I suggest soaking up as much knowledge as you can, with regard to what a good deal looks like.   

2. Educate yourself on the market you want to work in. What areas look good? Are houses selling in your area and for how much? Are there certain factors effecting your market that make one block better than the one across the street?  In our area, school zones can drastically effect home prices, for example.  What is a updated house selling for vs. a non updated house? What size house is in high demand? Are you selling to families needing 3 or 4 bedrooms or are you in an area where 2 bedrooms would work?  We work in a college town so in some areas, students are fine with 1 or 2 bedrooms but in other areas with young families, you need to be looking for a minimum of 3 bedrooms with 4 being SIGNIFICANTLY better.  What's the age demographic for the home you're considering? If you have a two level home in an area that has a higher population of 55 and older residents, they may prefer a one level home.  The list could go on and on but the point is this..... it's critical that you understand "who is going to buy this home when I fix it up?"  If you buy a dumpy house in a dumpy neighborhood, are you going to see a return on the money you invest in it when it's all fixed up? 

3. How will I get the money?  Understanding loan programs, hard money lenders, private investors, and a number of other options is going to be a huge asset.  For example, we have a number of clients that want to buy a foreclosure but they don't understand that they can't get an FHA loan on it in some cases.  Know your financing options. 

4.  What are buyers looking for, and how much does it cost to make it happen?   Once you've picked out a house, you've run the numbers, and found financing, you need to know what HAS to be done to the house AND what updates are going to give you the biggest return on your investment.  Certain things make buyers fall in or out of love with a house.  Very few buyers have "vision" when it comes to seeing the potential in a house, when they walk in the door.  You need to be able to identify the upgrades you can make to the house that will net you the biggest bang for your buck.  For example, most buyers won't walk in to a house with a choppy floor plan and recognize that they could potentially open up walls to get the desired layout.  You can learn a ton by talking to contractors and figuring out which projects are expensive and which ones aren't. Opening a floor plan is a great example of something that. In a lot of cases, it's a relatively inexpensive fix that adds a lot of value for buyers.  If walls are load bearing, it may be a different story, but learning how to tell the difference can be huge.   

5. Learn how to & what you can negotiate.   There's a number of things you can get if you just know what to ask for. For example, If I know I'm going to be sinking a lot of money in to renovations, I'm going to try to get the sellers to pay a chunk of my closing costs for me. If I have questions or reservations about a property, I'm probably going to do my best to account for them by adding contingencies to the contract so I'm not stuck in a bind if things don't work out.  The other big one most people are afraid to negotiate on is PRICE...it sounds so simple and basic but it's true. Don't get emotionally attached to a property! If the numbers work for you then great. If not, don't make a bad deal, just walk away....or ask the sellers to reduce the price to meet your numbers!

To sum it all up, my advice would be this:  take the time to educate yourself and, once you've done that, don't be scared to pull the trigger once you've found a good deal. Experience is the best teacher and, in my experience, I didn't really start learning the in's and out's until I got involved in a transaction.