House flipping is when real estate investors buy homes, usually at auction, and then resell them at a profit months down the road. Can you make money doing this? Yes. Can you make a lot of money doing this? Yes.
1. Familiarize yourself with how to buy a home or condo. If you’ve already done that, then you already know the process and it’s second nature. If you have not ever purchased a home, then consult with a realtor and a financial adviser. There are a few steps involved when purchasing a home so you need understand that process, such as: placing an offer, getting a mortgage, removing conditions and taking possession.
Placing an offer: Since verbal offers don’t constitute a legally enforceable sale, you need to draft a written offer and give it to the owners and/or realtor. The offer stipulates price as well as the terms and conditions of the sale. If the offer is accepted, the offer becomes a legally-binding sales contract.
Getting a mortgage: Unless you have heaps of cash handy, you’ll need a mortgage. There are dozens of kinds of loans out there, so examine the ones that might work for you and talk to a mortgage broker if you have any questions. Some mortgages (ARMs) have special “teaser” interest rates that stay low in the beginning and raise up significantly after a certain period of time. These might be attractive if you plan on selling the home quickly.
Removing the conditions: This is usually what the buyer does once the seller has accepted their offer.It is a legal move that the buyer (usually) makes in order to communicate that any obligations entered into by both or either parties have been met.
2. Understand the risks of flipping a home. Flipping a home can be risky. You’re incurring a large amount of debt for a potential payoff in the future. Except sometimes, that payoff doesn’t materialize, or it doesn’t materialize as quickly as we might have liked. You could be sitting on a property for longer than expected, paying a mortgage, property taxes, and continual upkeep. Sometimes, you will need to sell a home for less than you bought it for. Often, you’re at the mercy of a quivering housing market.
The amount of physical effort required is also a potential risk. How fit are you and how willing are you to do a lot of the DIY work involved in flipping the house? If you’ve never done renovations or fixes before, it will be a steep learning curve and the less you know, the longer it’ll take to flip the house.
3.Educate yourself about the real estate market in which you’re investing. Read magazines such as Forbes, Entrepreneur, and Money; these often have articles about real estate. Begin to understand how the real estate market works, what constitutes a good and a bad deal, and how to anticipate future growth or contraction in the future.
The housing market is like the stock market. It has both bull cycles (meaning optimism, growth, and high demand) and bear cycles (meaning pessimism, contraction, and low demand). The difference is that the housing market can take many more years than the stock market to switch from one cycle to another.
After talking to at least three realtors and doing some investigation, if you find that the market is in low demand and everyone and their dog seems to be trying to liquidate homes, housing prices are going to fall and profit margins will fall with them. These kinds of market conditions would make it more challenging to flip a home.
Try to wait for a bull market. Wait to buy until the real estate market has turned back around and more people are trying to buy than sell. This will create better conditions for you to start flipping.
4.Look for a home that can be substantially improved with the least amount of time and resources. You’re not trying to live in this house; you’re trying to buy it, improve it, and sell it. Try not to get attached to the home. Instead, view it purely as a profit-making exercise.
A home with room for improvement might have a run-down yard, an old carpet, a good spot for a carport, or other things that can be fixed with a little money and some hard labor. These types of fixes often provide an excellent return on investment (ROI) when flipping a home.
Some people look for distressed properties. Those are ones that the seller is “desperate to sell” for reasons such as: divorce, bankruptcy, death, poor condition of the property, late on payments or other. These give the buyer an inherent advantage over the seller.
Look for homes that sell in the middle to upper range. What that means is the amount where the average family would be able to afford it. Generally that means between about $200,000, and $500,000 depending on your area. You want that price range because these tend to sell the fastest — you have the largest population density looking for these mid range homes. It could be much less or much more but that’s about the average. The home generally have 3 or more bedrooms and at least 2 full bathrooms.
Find out what is preferred by residents in the area you’re looking to buy into. Simple things like easy access, off-street parking, no-through roads and a quiet neighborhood can make or break the attractiveness of a property.
5.Obtain a loan for at least several thousand dollars more than the price of the property you wish to flip. You’ll need this money for repairs and improvements. Negotiate a purchase of the property and buy. In the offer, be sure to have multiple ways out of the contract. The most common method is to simply put “subject to financing by [such and such] date.” If you can’t make the financing by then, ask for an extension on the condition date.