You’ve seen the TV shows: Individual finds a foreclosed home in the best neighborhood in town, scoops up said home for a steal, fixes it up, and sells it for a significant profit. What those DIY and home improvement shows don’t necessarily show you, though, is how tough flipping houses for a profit can actually be, whether it’s Miami, FL real estate or a home in Bismarck, ND.
But professional house flippers have insights that can be helpful to just about anyone who’s looking to buy or sell real estate. Here are the six secrets house flippers know that you can apply to your own real estate adventures.
1. Location always rules
It’s the age-old real estate adage: “Location matters.” For flippers and buyers alike, location is one of the more important criteria when buying. “I have learned that the best homes that sell for the most money and quickly are in areas where people want to live,” says Justin Udy, a real estate agent with Century 21 Everest Realty Group in Midvale, UT. If you’re hesitating in buying a home because of a locational factor — it backs up to a busy road, for instance — don’t buy it. Down the line, other buyers will hesitate for the same reason.
2. Consider resale as you go
Of course you want to put your own stamp on your new home, but you should also avoid superpersonalized design choices. Just because you like shag carpet doesn’t mean potential buyers will love it just as much when it comes time to sell. In addition, don’t overinvest in design upgrades. Flippers make a conscious decision not to “overupdate” their homes (for instance, adding marble tile when the comps all have ceramic), and as a buyer you should also consider your comps (otherwise known as your neighbors’ homes) when renovating your space.
Consider the upgrades and fixes that will be attractive to buyers who want to be in your neighborhood, adds interior designer and licensed real estate agent David Schneider of Schneider Kennedy Design in St. Louis, MO. “For instance, in some neighborhoods, laminate flooring is fine, while in another it is taboo,” he says.
3. Aim for instant equity
House flippers know not to buy homes at market value — they need to be well-underpriced (like a foreclosure) so the flippers have immediate equity. This allows flippers to quickly make repairs and sell without having to wait for the market to catch up to the price they want.
Homebuyers can adapt this rule for their own buying strategy. It’s not easy to find a house that’s extremely underpriced — and if you do, it’s probably not one you’d want to live in while you’re fixing it up — but you can aim to buy a lower-priced home in the neighborhood you want, live in it and make modest repairs, and then sell it years later for a profit. By that time, the market value should (hopefully) surpass your purchase price plus improvement expenditures.
4. Be diligent with inspections
Surprises usually aren’t happy news for a home flipper. A home may look OK on the surface, but professional flippers know that problems can lurk beneath what you see. Thorough inspections are key to help minimize fix-up costs — and make sure you know exactly what you’re getting into so that you can plan your budget accordingly. These inspections are essential to understanding the difference between a cosmetic fixer-upper and a serious rehab.
The same rule applies to homebuyers. When your HVAC or plumbing breaks unexpectedly because problems weren’t pointed out during an inspection, you might have to save up more cash before you can afford to make the cosmetic fixes you’d planned when you submitted the offer.
5. Have a backup plan
In other words: Always consider the worst-case scenario. For flippers, the goal is to buy, renovate, and sell, but what if the listing just sits on the market and those dreaded “carrying costs” start to add up? Sometimes a change of course is necessary when the local real estate market is soft and it doesn’t make financial sense to list your home for sale. Then what? “If the entire market turned around and no more homes were selling, ask yourself, ‘Could I lease this property and make a monthly profit?’” says Justin Udy. “A long-term exit strategy should be considered with any investment.”
6. Hire professionals
When it comes to home repairs, the old saying “You get what you pay for” rings true. Home improvements and upgrades affect both your enjoyment of your new home while you live in it and also your ability to sell it quickly (and at a good price) when you’re ready to move on.
“Seasoned professionals are worth their weight in gold,” says Udy. “Your goal is to maximize perceived value [when selling a home], so craftsmanship is important. Surround yourself with professionals. Get multiple bids and hire the person that seems to be the best for the job and most realistic — not the most expensive. I found the cheapest bid never does the best work and the most expensive just costs more. Remember, good work is not cheap and cheap work is not good. Just find someone good, professional, and competent.”
What lessons have you learned from buying (or flipping) real estate? Share your tips and experiences in the comments!