Key Considerations for Flipping Property

There’s plenty of buzz about flipping houses to make a big profit. As with any business endeavor, the process requires time, resources, research, and risk. And if you’re new to the game, don’t expect a TV show happy ending.

Before you get involved, define your expectations against the current market conditions. Once you own the home, what are your plans for improvement and timeline for selling? Most rookies want to get rich quick but fail to crunch the numbers and stick to their goals.

In this piece, a look at key considerations for prospective house flippers today.

Where You Flip

Maybe your city topped some list for best areas to turn a profit. Sources like WalletHub and RealtyTrac crunch numbers to analyze individual markets’ house-flipping potential. Based on metrics like average purchase price, average ROI, estimated renovation costs, quality of life score, housing-market health index rank, and more – there’s no shortage of data to support or squash your enthusiasm to flip.

But not so fast. Research is central to mitigating risk. Learning as much as you can about your local market can mean the difference between a fast flip or a total flop. It’ll also help you determine how long you might want to hold a property to await a more opportune time to sell.

Who are the house hunters and what are they looking for in your area? If the property you want to flip is in a trendy, urban neighborhood, you’ll probably be dealing with working class people. For a craftsman home in the burbs, you’ll be flipping for families. When you know your buyers, you’ll know how to approach the fix-it stage with their tastes in mind. Failing to understand them will dramatically reduce your odds for maximum profit.

The competition can be fierce for a house cheap enough to flip. In some cases, it’s hard to find an MLS listed house at a reasonable price point for flipping. If expert investors buying foreclosures for cash are finding it challenging to buy on the cheap and make a turnover – it’s best you consider your own odds of making a profitable flip in the same market.

Stick to Your Numbers

Flipping houses has been glorified by programs like Property Brothers and Fixer Upper. Hopefully, your only inspiration wasn’t from reality TV because you’ll probably realize it’s a lot harder than they make it look. When it comes to financing your flip: know your numbers- from start to finish and at every step along the way.

In 2016, nationwide, homes were flipping for an average profit exceeding $58,000, a ten-year high. But HGTV probably made you aware of that. What they don’t air are the costs for fixing and remodeling which may run you another 33% on top of the purchase price. Then there are carrying costs if you end up holding the property. Additionally, you’ll be spending on marketing and selling which variable, sometimes adding another 15%.

Knowing the numbers determines how you’ll tackle your own. Even if you’re smart about expenses and adaptable market fluctuations, your best bet is stick to a plan. Your profit margin depends on it.

The Right Advice

No matter what, you can’t do it alone. That’s not to say you must hire a top-notch contractor when, in fact, you welcome the renovation challenges ahead. Nor should you solicit the help of a realtor to help you sell. Getting good help and the right advice means building a network of people that can support you through the process. It may mean onboarding people that wish to invest with you. It might mean getting to know the handyman across the street. 

Use other people’s experiences and failures as a compass for your own decisions. Ultimately, flipping a house is your decision, blood, sweat and tears. Making deals and taking cue from people you trust will up your chances for success and profits.