Are you a house flipper looking to get better results? When you flip efficiently, it can be an excellent investment and make you a significant profit. You need to be careful so you don’t lose money on the house.
Luckily, there are plenty of tips that you can use to ensure it goes smoothly. You’ll find everything you need to improve a house flip in this article, so let’s get started!
1. Use the 70% Rule
Most house flippers use the 70% rule. This general guideline helps determine the maximum price you’ll want to pay for an investment home. You should never spend more than 70% of the home’s after-repair value, minus the renovation cost.
You can calculate this pretty quickly using this formula:
- After-repair value x .70 – estimated repair cost = max buying price
You won’t want to go above the maximum buying price- if you do, you won’t make much profit. Let’s work on an example where you believe the home’s after-repair value will be $200,000, and you expect to spend $30,000 on repairs.
You can figure out the max price like this:
- $200,000 x .70 – $30,000 = $110,000 max buying price
Use this tip with every house you want to flip so you know you’re making a profit before you start working on it.
2. Choose Financing Carefully
Next, you’ll need to ensure you have a reliable source of funds. Hard money lending is an option for many house flippers, so you’ll want to consider it. These loans have security through real estate, and you don’t have to go through a bank.
The property’s value will be your collateral- not your credit score. If you need access to fast money for funding a flipping project, then you won’t have to worry about raising your credit score first. You can even choose these loans as a first-time house flipper.
Hard money loans where you resell the home you use as collateral are very popular with house flippers. Since you plan on paying the loan back quickly after the sale of the house, this option should also work out great for you. Similarly, private money loans are also a great option as you have more flexible lending terms in comparison to hard money loans.
Overall, you’ll need to have money to buy the house first. Knowing how you’re going to fund a house flip can be challenging, so you’ll want to tackle this as quickly as possible. These loans are usually the best for property flippers.
3. Don’t Use a Listing Service
Services like Redfin and Zillow are very popular today. However, you want to avoid them if you’re a house flipper in a competitive market. Someone else would have already taken it if there were a good deal on the house!
Zillow even recently tried to offer house flipping through Zillow Offers but failed and lost a large amount of money in the project. Many house flippers tend to avoid it already.
These sites usually have different estimates than the appraised market value of the home, making them annoying to real estate agents. They can confuse you when trying to figure out what homes are in your budget.
These estimates don’t include repair costs, so you’ll have to be very careful. Otherwise, you’ll spend much more than you should on the property.
If you have a home from one of these sites, ensure you appraise and measure it correctly. You could have a house larger than the platform says, allowing you to sell for a much higher price.
4. Finish as Fast as Possible
Next, you’ll want to move very quickly through the process. You don’t want to spend too much time getting quotes. While that sounds like a bad idea, waiting for three quotes from every repair company can waste a lot of your time.
You want to complete the flip as quickly as possible so you can avoid paying high amounts of interest on any loans you take out. So, the faster you finish the flip, the more you make in profit.
5. Price Low and Work Up
Once you complete the flip and sell the house, you should price it slightly below the market value. While it sounds like the opposite of what you want to do, you’ll usually make more money this way.
Buyers can see that the house is freshly renovated and notice it’s a good deal. You’ll get many offers when that happens, giving you more room to negotiate. That way, you can sell the house for more than if you priced it higher.
This tip works even better when there are a lot of buyers on the market. They’ll often see a house marked for a great deal, then feel a sense of urgency in buying it because they want to get it before anyone else.
Overall, you should price the house a little low at first. While this sounds like a bad idea, it almost always works out in your favor and earns you a higher profit after negotiations.
6. Look for Unattractive Houses
While this also sounds like a bad idea, you’ll want to choose the houses people think are ugly. You want the house to have a solid foundation, strong roof, and structure. Still, you should look for undesirable aesthetic features. For example, paint in colors people don’t like or messy lawns.
These unattractive features are easy for you to fix and lower the cost of buying the home. That way, you can pay a little less, making a higher profit on the flip.
However, you’ll still want to avoid houses that have significant issues, including leaking roofs or bad plumbing. These types of fixes are costly and take a lot of repair time.
You’ll always want to visit the house in person to identify what is simply unattractive about the property and what’s a more significant fix.
Learn From Others
Even if this is the first house you’re flipping, others have done it before. You’ll want to conduct a lot of research into your area’s market and check out what other flippers do online.
Learning from flippers with more experience can make the process easier for you. Plus, you can document your venture online for others to learn from!