Flipping Homes? Here are Some Useful Tips.
Updated: Sep 8, 2022
We all know that diversifying investments is the way to go. If you are thinking of buying a property to fix and sell at a profit, there are many factors you need to consider. Flipping homes can be extremely rewarding but it is risky. It may involve a lot of work however, if you put a good team together composed of a realtor, a loan officer, a home inspector, and an experienced and knowledgeable general contractor with wholesale suppliers of finish materials, then it will be a lot easier for you to flip homes.
Here are some tips that you may find useful in flipping homes:
LOCATION, LOCATION, LOCATION - Yes, that still holds true for real estate. A good realtor can be a lot of help here in hunting for the bargain homes. Be aware of the comparables, the cost of fixing the home, needs and demand of the area, and any future development that is to happen in the community. In California, new builds are going vertical. Developers are doing more high-rise condos and townhomes so as to maximize the land that they purchase. Younger home buyers want accessibility to amenities.
CONDITION OF THE HOME- The less you have to do to the home, the better profit you will make. An ideal property is one that will only require minor cosmetic changes such as flooring and paint. However, it is very important that you have a good home inspector who can provide you with a detailed report on the roof, mechanicals, plumbing, and electrical. These items can be very costly to fix or update. Try and stay away from very old houses with acoustic ceilings or “popcorn” ceilings too. The cost of asbestos and lead abatement can easily rack up your cost to repair.
DESIGN AND LAYOUT- Flipping homes require an eye for design. The cost of hiring an interior designer can be expensive however, if you are to purchase and sell a home in a high income neighborhood it is best to have someone who can assist you in choosing the right colors, the right fixtures, and if you can afford someone to stage it, the better. If your budget does not allow for an interior designer or a stager, hire a general contractor who can also provide design services. You want the home to look fresh, open, appealing, yet neutral enough for the buyer to imagine the home with their own furniture and fixtures. A designer or a general contractor with experience in design can suggest finish materials that will not break the bank but can put together reasonably priced materials that look beautiful and luxurious.
PERMITS AND BUILDING FEES- Before making an offer to buy a property, it is wise to make a call to the City Building Department to find out what permits will be required, what fees are to be paid for the remodeling of the property.
HOMEOWNERS ASSOCIATION (HOA) – Like permits and building fees, it is important to call the Homeowners’ Association to find out the community rules and regulations pertaining to remodeling a home within their jurisdiction. Each HOA has their own rules and regulations that may even be more strict than the city. Find out as much as you can as far as what you can and cannot do with the exterior of the house, approved exterior colors, dumpster rules, and any other information that will be helpful to you and to your contractor.
HIRING YOUR GENERAL CONTRACTOR - It is important for you to do your due diligence when hiring your contractor. Check their license, insurance coverages, bond, workman’s compensation if needed, and verifiable references. Some investors take it upon themselves to act as their own general contractor. This is a way to save on costs however, it is best that you weigh how much time you are willing to spend pulling permits, scheduling subcontractors, scheduling building inspectors, sourcing materials, supervising the job, and more importantly, if you are you are the owner/builder know that you are required to cover your workers’ taxes, social security, medicare, and workman’s compensation. If you are using trade specialty contractors make sure that they are licensed and has the coverage for both general liability and workman’s compensation for their specific trade. More often than not, homeowners’ find it extremely stressful to be their own general contractor and the savings which is not much, is not worth all the hassles and stress. A full house remodel can take months to finish. A general contractor experienced in flips will be a great ally.
UTILITIES - Make sure that you have called the utility companies such as gas, electric, water, etc. You can find out what is the average use for that address to give you an idea of utility expenses you may incur. Bear in mind that contractors will be using power tools and other equipment that will drive up the use of your electricity.
CONTINGENCIES - Always set aside anywhere from 10-20% for unexpected expenses. What cannot be seen on the initial inspection will be hard to assess. Any issues that may appear once demolition is completed such as outdated plumbing, aluminum electrical wiring, termite damage on wall studs or ceiling joists , uneven subfloor (if under carpet is hard to determine), can add to your costs to fix or bring up to code.
When you decide to flip homes, there is a possibility that the home may not sell as fast as you wanted it to or for much of a profit as you anticipated. You have to have contingencies, but if you research, plan, and put together a great team, flipping homes may just be one of the best investments you ever done.