House flipping involves buying homes to renovate and then resell for a profit and is becoming an increasingly popular way of investing in real estate. Although house flipping can be highly profitable, it can lead to financial trouble if carried out incorrectly.
Conducting proper research, selecting a worthwhile location, choosing cost-effective renovations and marketing the home are essential to ensuring the process is profitable. Let’s examine each of these in greater detail.
The research and planning stage is vital for any project, especially one as large, complex and expensive as house flipping.
The first thing to do is ensure the market is profitable enough to enter. Analyze real estate marketing trends — for example, house prices — in your desired location and ensure the time is ripe for investment.
With any investment, the aim is to “buy low and sell high,” so balance the costs of mortgages with the potential return on investment when the property sells — this will likely be months down the line.
Setting a budget is also an essential part of the planning process. Although the precise amount one should invest will vary based on one's finances, the “70% rule” is a helpful guide. This rule states that the total cost of purchasing and renovating the property should be no more than 70% of the after-repair value (ARV).
Remember that you won’t profit from developing a property until the final sale, meaning you’ll be out of pocket for a while. Because of this, the quicker the whole process takes, the better.
However, be realistic with your project’s timeline, and don’t be tempted to cut corners to speed things up. When the property is on the market, and you receive a reasonable offer, it’s usually best to take it — home values can decrease quickly while you wait for higher offers.
Location plays a significant role in the value of a property. Don’t be afraid to check out areas far from where you live, as the housing markets may be much more profitable. Whichever location you choose, research building and development codes and regulations. You don’t want fines or legal costs to eat up your profits.
Aside from a home’s location, choose a home that you can renovate relatively easily, especially if you’re a first-time flipper. It’s best to avoid houses with serious structural issues such as damaged roofs, walls, or foundations. While the upfront cost of these properties will be lower, the renovation cost is likely to be costly, and issues can arise to slow down your project.
If you’re struggling to find the right property, you can hire a realtor. Consider offering a finders fee — a fee based on projected profit and usually a few hundred dollars — to any professionals who can help find promising properties.
Some renovations and repairs will be essential, while others may be optional. Although essential repairs can’t be avoided, like structural repairs needed for safety, you can avoid choosing a property where these repairs are required.
When it comes to optional renovations and repairs, prioritize those that offer the highest return on investment, such as replacing kitchens and bathrooms. Although you don’t want to spend too much, using high-quality building materials and professionals is worth the cost. This investment will help you avoid expensive repairs down the line.
Additionally, consider the property’s curb appeal. This may mean replacing the soffit, fascia or other parts of the home's exterior. For example, you can achieve an appealing wood look with vinyl or create a modern design using steel siding with black soffit and fascia.
While some renovations, like painting walls or grouting tiles, can be done with basic DIY skills, others are more complex. Avoid attempting bigger projects that could risk your safety or the home’s long-term quality. Whether you need help installing a new gas boiler or installing vinyl siding, consider contacting professional specialists.
Once your renovation project is complete, it’s time to sell the property. Although this may seem easy if your renovations have made it a desirable home, there could be a lot of competition in the market. To increase your chances of selling the property, hire high-quality professional photographers to capture the images you’ll use on property sites and share them with estate agents.
Alongside these images, you’ll need to write a great listing description. Highlight the property’s features and the benefits of living in the area. It can also be helpful to mention how you’ve improved the property, as some prospective buyers may have seen it in a previous condition. If you lack writing skills, consider hiring a copywriter to create an elegant and enticing home listing.
Finally, building relationships with others in the local industry, like real estate agents, contractors and other professionals, can be beneficial. While this may seem daunting during your first house-flipping project, you’ll find that these contacts will come in handy if you pursue additional projects down the line.
Flipping a house can be more difficult and expensive than it seems. Thankfully, with the right research and planning and the best building materials, you can create homes that leave an impression and bring in a significant return on your investment.
Rollex can help you with the exterior of your investment property. Since the 1950s, we have provided clients with top-quality soffits, siding and rainware. Our low-maintenance, durable and environmentally friendly products are perfect for breathing new life into old homes. Plus, with different material and color options, you can be sure to find a solution that will boost your investment property’s curb appeal.
Ready to get started? Contact us today to see how our experts and high-quality products can help you turn a profit on your next project!