House Flipping Tips for Beginner Investors

House flipping is an exciting business venture that includes buying and selling houses for a quick profit. Regardless of what you may have seen on the popular HGTV network, flipping homes for a profit is a lot easier said than done. However, much like anything in life, if you are prepared and do your homework before hand, you can turn this business into a master piece and create what we are all aiming for in this life, financial freedom. With doing your homework and having a good eye for deals, you can make a profit in almost any market. Keep in mind that house flipping does not entitle you to use capital gains tax rates because you are not holding the property as a rental for at least a year. Your profit will be taxed as ordinary income.

Start Small

If you are just getting started out in flipping homes, start small. In other words, start with an entry-level house that is not in need of a ton of work. Have a few general contractors in your back pocket that you can trust, and make sure you are fully aware of how long the work will take (this is especially important when you are leveraging hard money loans). Although you stand to lose a lot even on a small real estate deal, it will be nothing compared to what you could lose on the rehab of a Hollywood mansion. Be satisfied with a small profit your first time out. The purpose of your first deal is to learn the ropes and minimize loss. Once you know what you’re doing, you can move up to bigger projects on more expensive homes. The more you learn, the more you will earn. Stay patient with the process and use each failure as an opportunity to learn and grow your business endeavors.

Location, Location, Location

Don’t sacrifice location for price. It will always be easier to sell a house in a nice neighborhood than in a bad one. And although prices will be higher, so will profit. When researching neighborhoods, look for areas with good school districts, low crime rates, high owner occupancy rates, close to but not next to freeways and near public transit, and well-kept parks and amenities.

Focus on Cosmetic Improvements

Some houses look pretty good but have outdated furnaces, obsolete roofs and galvanized iron plumbing. You want to buy the house that has a newer roof and furnace and copper pipes but looks hideous. Loud, mismatched color schemes, carpet with animal odors and walls covered in grease are your new best friends. These are the houses that need only minor cosmetic improvements to noticeably improve their value. A lot of first time investors get scared off from a house that looks hideous on the inside. Remember that these unattractive features can be attractive profits if you have the right vision for the end result.

Design for buyers, not for yourself

Selecting cabinets and paint colors for a flip is different from decorating your own house. The design elements need to appeal to a broad group of potential buyers. “It is important to be conservative in your color selections," says Justin Peters. “The goal is to try and keep it basic like an antique white. When you go to a little higher-end home, think about going with features like when you close a drawer, it won't slam, and nicer crown molding on the cabinets." Installing features that buyers in the area want, like a wall-mounted TV, higher-quality cabinets, or a built-in wine cooler, can make a property stand out and sell more quickly.

Don’t rush to put it on the market too soon

"A lot of novice investors are in such a rush to get a property on the market, and it's not ready yet," says Justin Peters, a Realtor and Investor in Fort Worth, Texas. Wait until the absolute end, when it looks right, smells right, and it's staged with furniture. Don’t take away potential profits just because you try and rush the process. Stay patient, look at the home in the eyes of a buyer, and put it on the market, when, and only when it is ready to be displayed.

Justin Peters

Real Estate Professional

Somerik Realty

Dallas/Fort Worth