House Flipping 101 Revisited… It’s Not Rocket Science

 

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.