There’s no question that house flips can be profitable ventures. However, if your knowledge of flipping comes exclusively from reality TV, it’s in your best interest to educate yourself before proceeding with your first flip. While there is some valuable advice to be gleaned from certain shows, television shouldn’t be regarded as a substitute for actual research. So, when seeking out your first flip, make sure to take the following factors into consideration.
1. Has the Property Undergone an Inspection?
There are a number of reasons for which a professional inspection should be a prerequisite for purchasing a flip. For starters, a certified home inspector will be able to identify an extensive range of problems that non-professionals wouldn’t even think to look for. And as an investor, getting stuck with a home with outstanding plumbing, electrical or structure issues is the absolute last thing you want – especially if said issues don’t come to light until well after the sale has gone through. Secondly, the results of a professional inspection will give you a solid understanding of how much work the home requires, enabling you to make an informed purchasing decision and budget for repairs/renovations accordingly. Furthermore, if an inspection uncovers problems with the property that you and/or the seller were unaware of, you may be justified in requesting a reduction in price.
So, no matter how apparent – or nonexistent – a home’s problems appear to be, you should never forgo a detailed pre-purchase inspection. Furthermore, you should be wary of any seller who tries to dissuade you from having an inspection performed, as this is often a sign that they don’t want certain issues to come to light.
2. How Much Demand is There for Housing in the Area?
When weighing the pros and cons of a potential flip, you should never overlook housing demand. Local housing demand will largely determine whether you’re dealing with a buyers market vs sellers market. No matter how profitable a flip seems, you may have trouble commanding your desired asking price if the home is located in an area with little-to-no demand for housing. Conversely, even a property that’s somewhat lacking in amenities stands to make you a lot of money if it’s found in an area with a large population, steady rate of growth and ample housing demand.
So, before proceeding to make an offer on a flip, conduct some research into its location. Forming a solid understanding of an area’s local economy, median income, crime rates, growth potential, rent prices and property values will give you a good idea of how much a flip is reasonably worth and whether it’s a good investment of your time and capital.
3. What is Your Renovation Budget?
Since repairs and renovations feature heavily into many flips, it behooves you to know how much you’ll be spending before making an offer. After all, being able to afford a home doesn’t necessarily equate to having the money to flip it. So, after a pre-purchase inspection reveals any outstanding issues with the property, obtain estimates from various contractors. Should you discover that the necessary repairs/renovations are well outside of your budget, it may be a good idea to walk away and set your sights on other prospective flips.
Unsurprisingly, diving into a flip without a solid understanding of how much time and money the project requires is liable to leave you with a half-renovated property you’re unable to sell. Furthermore, even if you have a healthy renovation budget in place, take care to set some additional funds aside for unforeseen emergencies.
4. Are Your Contractors Licensed and Bonded?
When undertaking a flip, you should work exclusively with contractors who are fully licensed and bonded. Doing business with unlicensed contractors may seem like a financially sound decision, but their comparatively lower prices often come at a cost – specifically, their lack of incentive for sticking with jobs to the end and working within your budget. Additionally, you get stuck footing the medical bills for any injuries unlicensed contractors incur while working for you.
People whose knowledge of house flipping begins and ends with reality television are liable to experience a litany of problems when undertaking their first flip. There’s a lot more to this process than many fledgling flippers realize, and going into such a project unprepared is likely to result in considerable stress and financial strain. So, before diving into your first flip, it’s imperative that you cross all your t’s and dot all your i’s. First-timers on the hunt for their first flip should carefully consider the factors outlined above.