With the growing popularity of HGTV shows such as “Masters of Flip” we have all become immersed into this glamourized world of making quick cash flipping houses. Is there money to be made buying and fixing properties? ABSOLUTELY! But there are lots of things to keep in mind before finding the cheapest house and going all in (Yes this happens more often than I would like to admit…)
If considering a flip project, the first question you want to ask yourself is “Can I afford to potentially take a loss?” As with any other investment, there are risks and no guarantee of “instant wealth.” There are a lot of carrying costs that come with renovating a property that you need to be aware of. If the potential of losing money would be devastating to your savings…maybe wait until you are financially more secure to risk taking a loss. When deciding which house to invest in for a quick return on investement, it is best to take a look at a couple things:
Price: Make sure you are not over paying in an area that will cap out at a certain price (if no house in the area is over 500k, don’t expect to purchase a home for $450,000 renovate and sell for $650,000. It is likely the market in that area cannot accommodate that price. If the list price isn’t fairly low, chances are it isn’t worth it. Repairs and renovations are VERY costly, so the more your over-pay for a property, the more potential profit you are eating away it, which creates a higher level of risk.
Area: If a home is priced low, ask yourself WHY. Is the area not desirable? What future plans for the community may be driving down home prices? What is the demographic? Is it close to amenities? Close to Schools? What is the state of the Real Estate Market? These are all VERY important things to consider when investing in a property. As the old flip or flop saying goes “Find the worst house in the best neighborhood.”
Floor plan: Don’t assume an awkward floor plan is an easy fix. This is one of the most common mistakes when purchasing a fixer-upper. If the home has an existing wonky layout, don’t just assume you can knock down every wall and it will be great…Homes have load bearing support walls that are VERY costly to remove and have to be structurally re-enforced to support your home. The removal of these load bearing walls and the addition of structural re-enforcements will quickly eat up a HUGE chuck of your renovation budged. Sometimes it may be best to find a simpler floor plan to work with. It is less of a headache to work with the existing bones of a home then to fight them.
Current State of The Real Estate Market: Seems like common sense…but to no avail investors jump into a project without realizing the market is in a downturn (which may be why the property was priced so low) making it difficult to sell in the timeframe they needed to generate a profit.
Lastly, I know we all like to believe we are Mr and Mrs fix it…but please find a knowledgeable expert or contractor who can view properties with you and provide you with an estimate so you know how much of a renovation budget may be required. I mean…knowledge is power, so get TONS of it before putting all your hard earned dollars into an investment opportunity you haven’t researched thoroughly.