If you want to learn how to flip a house for profit first understand that you are in the business of buying and selling property fast. Your focus must be on speed – not maximum profit. You must be realistic and understand that each delay compounds your risk. Better to sell a property fast at a small profit and go on to the next deal rather than try to maximize your profit on every transaction.
The core of your real estate flipping business is to buy cheaply and at the same time sell your properties at prices under market. That’s how you’re going to move the property fast.
At the same time, it’s important to realize that the landscape is changing. More people are jumping into this game and driving prices up. That means you’re going to have to be more patient, look at more deals and show restraint and pass on properties that aren’t going to give you an edge. You also have to avoid real estate scams.
And your challenges don’t stop there. If you want to be successful in buying real estate you must understand that not every location lends itself to flipping property. You’re best bet is to focus on those areas that have been hit hardest and have suffered the greatest losses. That means you’re going to have buy property in distressed areas. Those markets are going to be full of foreclosures, and it’s going to be somewhat frightening.
If that isn’t challenging enough, institutional buyers are diving into the market as well. They’re swallowing up properties right and left. That’s making it even harder to find deals that make sense.
With all these difficulties in mind, how do you flip homes profitably in this market?
1. Pass on Expensive Repairs
There is nothing wrong with doing cosmetic repairs such as basic touch ups, replacing carpets and light yard clean up. But don’t get into projects that require big money investments such as updating kitchens and/or bathrooms or changing the layout of the house. Besides the added financial risk of sinking more money into the property, it will also take more time before you will be able put the house back on the market.
2. Take on No Debt
Only get involved in property that you can buy for cash. That reduces your risk and will save you a ton of money. Taking loans involves lending fees and if you only hold the loan for a very short time you can’t amortize that cost. For example, let’s say you want to buy and sell properties that cost $100,000. Let’s say you plan on buying and selling one house every 3 months. If the loan costs you $2,000 in points and fees and you make that loan 3 times in a year its’ going to cost you $6,000 each year. If you use your own money on the other hand, you’ll save those costs.
Buying for cash will also allow you to move quickly and that means you’ll be able to take advantage of good deals fast. It gives you an edge compared to other buyers who need to get loan approval. However, if you don’t have the money, don’t get in over your head. That includes your retirement funds. Even though real estate might be very attractive, I am very much against using retirement funds to buy real estate.
3. Turn it Over
If you sell the properties fast your profit will skyrocket. Again, assume you have $100,000 to invest in flipping properties. Let’s say you are able to make $10,000 profit per deal. If you sell one a year, you’re going to make 10%. If you are able to buy and sell 3 times during the year your profit climbs to 30% for the year.
4. Don’t Get Greedy
Take time to really understand the value of your property. What can you sell the property for quickly? How much is it going to cost you to get the property up to speed? How long will it take you to get your property market ready? Don’t get started in this business unless and until you understand these variables.
Make sure you do your deals in areas where employment is strong. Jobs are the “secret sauce” that leads to strong buyers and real estate recovery. Without jobs real estate prices will continue to flounder. In short, you need people with jobs to buy your property if you want to make money.
The key to making money flipping real estate is to buy right. If the market is flat or rising it won’t hurt you because you’re getting rid of the property fast. As long as you buy at bargain basement prices you’ll be fine. You need a strong market full of people with jobs that will bid on your home.
Are you flipping real estate now? What’s working? What challenges are you facing?