Flipping a house takes planning, money, skill, and time. Even if you think you’ll be able to make a tidy profit in a short period of time, the process can take longer than you’d hoped. There are a few mistakes that you can make when flipping a house that could end up putting you in the poor house.
First, you should set aside capital before starting your new business. Home flipping is not an overnight success, so it’s essential to have your finances in order and a list of the right properties in mind before diving into the process. It is important to have a realistic goal for the property’s price and the timeframe in which you plan to complete renovations.
A second factor is to have an accurate estimate of the costs of renovations or repairs. Your gross profit does NOT include the costs of renovating or repairing the property. These expenses must be covered by your profits. You should sell the house quickly. Real estate agents can help you with these important steps.
In addition to having the skills to fix the house, you should have friends who can help you with these tasks. You should always ask for references from contractors you hire. A good contractor will be able to tell you what needs to be fixed and how much it will cost. The last thing you want is to face a surprise repair bill after you’ve bought the house.
When buying a house for flipping, you can choose to either pay cash or use a mortgage. While a 15-year mortgage or a 10-year mortgage is more desirable, it is important to remember that you won’t be living in the house for that long. You can also acquire a hard money loan, which is a short-term loan secured by real estate. These loans are often lower interest than conventional mortgages and are popular amongst house flippers.
You should also hire experienced house flippers and suppliers. Although you may need to hire subcontractors, having a team that is experienced in the field will ensure you don’t run into unexpected problems. If necessary, you can also hire an accountant for your taxes.
It is important to set a budget before you flip a house. Most buyers go by the 70 percent rule, which states that you should purchase a property for 70% of its ARV less the costs of repairs. This rule allows you account for unexpected repairs, home and utility insurance, as well as property taxes.
Once you have a budget, you should start searching for houses that match your budget. Some homes need extensive renovations to be sellable, depending on their condition. Others are in need of minor improvements.
About Jim Vanderberg, Toronto Canada
Jim Vanderberg is a real estate investor based in Toronto Canada. He spends his time on the tennis court during the day, and afternoons are spent watching his crypto investments and looking for the next property to invest in. He occasionally flips houses in the Toronto area, but also invests in properties for the rental income. You can follow him on Twitter @vanderbergjim