Back
by popular demand, we are revisiting our discussions of House Flipping over the
next couple of months. Judging by the
popularity of some reality television programs, house flipping remains a
subject of some fascination to the general public. There are even “free seminars” offered by
some of the television personalities featured in these programs. Of course, the “free” seminars are really
designed to convince novices that they need to buy that television personality’s
books… or DVDs… or “system.” Save your
money! It’s not rocket science.
All the same
general business principles that make or break any business endeavor apply to
flipping houses. You need to buy the
house “right.” That is, at a price that
enables you to budget adequately to renovate and resell the home for a
profit. You need to have good, honest,
reliable tradesmen (e.g. roofer… plumber… electrician… carpenter… etc.) ready,
willing and able to do the renovations for you.
(The flipper himself or herself is very rarely equipped to handle
renovations, regardless of what you may see on television.) And you need to know what you can expect to
resell the home for when it’s finished—its “After Rehab Value or “ARV.” You need to establish a solid budget for the
rehab even before you decide what to offer for the home when you are
considering its purchase. And you need
to stick as closely to that budget as you possibility can—which is often much
easier said than done. (Any budget
should include consideration of unanticipated expense and cost overruns—usually
about 10% of the total budget.)
It’s not rocket
science. But, like any business, it
requires preparation, budgeting, research, and planning. It also requires adequate cash flow and
“capitalization”—that is, you need to have the funds available to actually
accomplish what you plan to accomplish.
There are lenders who specialize in financing the purchase of investment
properties. Some are “expensive” and care
needs to be taken with this. Those
buyers who have good credit and some money to put down have many options for
capitalization of their project(s). Capital can come in the form of savings, a
loan from relatives, etc. But you don’t
want to get started before you are ready to take the project through to its
conclusion. That is true of any
business.
And just as a
clothing retailer needs to know something about fashion, supply, demand, etc.,
so a house flipper needs to know the market in his or her area. Market conditions are constantly changing, so
what you knew six months ago may not apply today—something most of the sellers
of those “systems” don’t tell you. You
need to do your homework and stay current.
But the good news is, you don’t need to go it alone. There are professionals who will help
you. A good real estate broker should
already know the market, and if he represents you in a purchase, the seller
will pay his commission. His services
cost the buyer nothing.
In coming months,
I will unpack each of these issues. And
in the meantime, if you would like more personal assistance, please feel free
to contact me. To search the entire Charlotte area MLS for all homes, townhouses, condos, etc. FREE, go to my web site.
