Flipping Houses Articles

Article / Updated 04-25-2023

Selling a home can be very nerve-wracking, so you may be tempted to take the first offer that comes along. Be careful! Potential buyers can be problematic if you don't know what to look for. Not all offers are created equal, so if you jump at one too soon, you could end up breaking the law, tying up the sale of your home, or seeing your home sale fall through. Here are some signs of potential trouble when looking at offers on your home: The buyer requests a cash-back-at-closing deal. Here, the buyer offers you more than the home is worth if you agree to kick back the extra money at closing. This practice is fraudulent and can land you in jail. The buyer isn't pre-approved for a mortgage loan. This person can tie up your home, preventing you from considering better offers. The buyer offers no or very little earnest money deposit (EMD). The lower the EMD, the more likely the deal will fall through. The buyer makes the purchase agreement contingent on the sale of his home. For your home to sell, several other transactions must occur first. This is known as the domino effect, and you should avoid it, if possible. This type of contingency ties up the sale of your house with no guarantee that the interested parties will ever actually go through with the deal.

Article / Updated 03-30-2022

When renovating a property that you intend to flip, don't get carried away. Some home flippers hire top-of-the-scale contractors and insist on the highest-quality building materials from the nearest suppliers. To help you avoid that trap, here are 11 secrets that can slash your cash outlays and boost your bottom line. Get free advice and planning tools. You don't have to hire a professional interior designer to draw up plans for remodeling a kitchen or bathroom. Most home-improvement stores have their own designers on staff to assist you. If you purchase the materials from the store, the store frequently throws in the design consultation for free. And who can say no to free? You can often find additional planning tools and calculators online. Large home-improvement stores and manufacturers typically feature cost estimators, material lists, and installation instructions and tips on their websites. For some excellent online resources for planning your projects, check out Lowe's, Home Depot, and Bob Vila Design Tools. Hire moonlighters. Large construction companies often have large overhead costs, so they have to charge more for their work. A roofing company, for example, needs to purchase and maintain its trucks, pay rent on office space, and cover payroll expenses and insurance for its workers. To earn an extra buck on the side, the employees of many of these companies moonlight, which means they provide the same high-quality service on the side for a fraction of the cost. You can often locate prospective moonlighters by visiting worksites in your neighborhood. Ask to see the boss, and if he's not around, pitch your proposal to the workers. If the boss is around, you can ask him for an estimate without blowing your cover. Hiring moonlighters is a great idea, but make sure they have health insurance with accident coverage. If your workers don't have proper insurance and one of them gets hurt working on your house, your cost savings could quickly be sapped away by losses. If the moonlighters don't have insurance, buy an insurance policy that includes accident coverage for workers. Hire students over the summer. When school's out, college and high-school students flock to area businesses to secure summer employment, and they're often turned away because so many people are looking for jobs. That's where you come in. Post an ad in the local newspaper or contact high schools and colleges in your area to let them know you're looking for summer laborers. Students are eager and well-qualified to perform the following renovation chores: Mowing, weeding, trimming bushes and trees, and planting flowers Patching and sealing driveways and walks De-cluttering garages, basements, and attics Vacuuming, window washing, and other cleaning Demolishing old storage sheds Tearing out old carpeting Patching and painting inside and out Refinishing decks Buy overstocked or discontinued building materials. When you wander the aisles at your local hardware or building-supply store, find what you want and then ask about any overstocked or discontinued materials that are similar in appearance. Talk to the manager, who most likely wants to clear the old, overstocked items from inventory to make room for the new merchandise that's in greater demand. You can often purchase overstocked or discontinued merchandise for a fraction of the cost. Buy builder's-grade materials. When shopping for building materials, ask the salesperson to direct you to the builder's-grade materials — the more affordable options, such as prefab cabinets and low-grade carpeting. If installed and maintained properly, these materials are perfectly suitable for most markets. If you're flipping on the ritzy side of town, however, you may need to buy the good stuff. Gauge your selection of materials by the visibility and importance of the rooms. Consider using higher-quality materials for the kitchen, main bathroom, and master bedroom and a lesser quality for the other bedrooms and the second and third bathrooms. Use remnant material to trim your costs. Carpeting stores, countertop manufacturers, and other suppliers often have remnants in the back that may be sufficient for completing small jobs. Picky customers often return items that have tiny scratches or dents as well as materials that they cut a little too short. These gently used materials may be just what you need, and you can pick them up for pennies on the dollar. Buy time-saving power tools. When you hire a contractor, you indirectly pay for the tools that make the job much easier. When you rent a tool, you have to return it. When you buy your own tools, however, you have them for as long as they work, and you can spread the cost over several flips. If you're a do-it-yourselfer, buy the tools that make it easier for you to do a professional job. In addition to the standard hammers, pliers, wrenches, screwdrivers, tape measures, paint scrapers, and paintbrushes, almost every house flipper can simplify do-it-yourself jobs with the following power tools: Heat gun for stripping wallpaper and paint Power washer to clean everything from decks to siding Power roller for painting inside walls and ceilings Cordless drill with a well-stocked drill-bit case Screw gun with Phillips and flat-head screw bits Circular saw for decks and other woodworking projects Reciprocating saw for cutting anything you can't cut with a circular saw Nail gun for quick and easy single-handed nail driving Vibrating sander, or belt sander, for sanding out scratches and gouges in wood surfaces Charge purchases on a rewards-back credit card. Credit-card companies offer some pretty sweet deals to reward customers for using their cards, and as long as you pay the balance in full when you receive the bill, you're not socked with high interest charges. If your building supplier offers its own credit card, you may get a discount on all purchases. If not, shop around for other cards. Companies offer everything from cash-back deals to frequent-flyer miles, free merchandise, free groceries, 0 percent interest for a specific period of time, and other attractive benefits. Take full advantage of these perks. Schedule work off-season. During the off-season, larger companies have to keep their employees busy in order to pay them and finance their benefits. Use this as a bargaining chip when negotiating the cost of repairs and renovations. However, don't delay a project that needs to be done just to save a few bucks — holding costs (the cost of maintaining a flip) can outstrip any savings. You reap two additional benefits by scheduling work off-season. The contractor is more likely to complete the job on schedule and is generally more responsive when you need her services in season. Pool your projects. Most skilled laborers charge a minimum for just showing up. You pay for their time and travel expenses no matter how small the job. To save money, pool your projects. You can draw up a list of projects for the plumber, a list for the carpenter, and another list for the electrician. Have them complete all the projects in one trip. Better yet, if you have several houses going at one time, ask the contractor whether she'll consider giving you a discount if you guarantee that she can work on all your properties. Talk with your neighbors. If they're having the same work done on their homes, you may be able to negotiate a better price for multiple jobs. Rent a large Dumpster (a.k.a. skip) for all the tear-out and construction debris so all your contractors have one place to dump rubbish from your flip. By supplying the Dumpster, you can tell your contractors to remove the cost of waste removal from their estimates.

Cheat Sheet / Updated 03-30-2022

"Flipping houses" sounds as easy as 1-2-3: 1) Buy a house significantly below market value, 2) fix it up, and 3) sell it. However, when you actually try to flip a house, you soon realize that it's tougher than it sounds. The beginner faces several hurdles, not the least of which is tracking down properties with potential and buying them for cheap. This Cheat Sheet brings you up to speed in a hurry on house flipping basics and helps you clear the most common hurdles.

Article / Updated 03-30-2022

When most people think of flipping houses, they immediately envision a process of buying a ramshackle house on the cheap, fixing it up, and then reselling it for more than they've invested in it. That's certainly the underlying theme, but the actual process of flipping houses spawns a tool shed full of choices and questions, including the following: Are you going to live in the house while fixing it up? How long can you afford to hold the house before selling it? How extensive are the renovations you're willing and able to perform? Before you even consider making an offer on a house, know how you're going to profit from it. Are you going to buy it at a bargain and resell it immediately at market value, do a quick makeup job and resell it, perform some major renovations, or fix it up and use it as a rental? Each of these strategies has benefits and drawbacks, but each strategy is a perfectly legitimate way to turn a profit flipping property. When developing a game plan, you want to maximize your strengths, minimize your weaknesses, and fully exploit the opportunities that surround you. Many a flipper have already developed their own strategies that achieve those three goals. By becoming more aware of these existing strategies, you can choose the one that fits you best and perhaps even improvise to invent your own strategy. Always buy low. If you can't get a house for 25 to 30 percent or more below what you estimate to be its market value, keep looking. In a sizzling real estate market, you can turn a profit fairly quickly by buying a house, moving in, and then sitting back and watching the real estate values soar. This approach works only if you have time on your hands, are speculative by nature, and have a knack for purchasing houses in a hot market at just the right time. This strategy offers several benefits: If the market remains strong, your property value rises without your having to lift a finger. Your equity in the property rises, boosting your borrowing power for other investments. By living in the home for two years or more, up to $250,000 of your profit ($500,000 for a couple), is tax free, at least according to the tax laws as of late 2006. Buying into a hot market also carries some significant risks: In areas where property values are soaring, the housing bubble may burst, leaving you with a home that is worth less than what you paid for it. Stuff happens. You can have a great house at a great price in a hot market with the top agent working to sell it, and the house still may not sell. Prepare yourself for all possibilities. What goes up sometimes comes down — sometimes very quickly — but all markets can be good for investing as long as you recognize the conditions and opportunities and react appropriately.

Article / Updated 08-27-2021

The housing market, like the stock market, fluctuates. Home values can steam ahead, stay put, or spiral down out of control. You make your money when you buy a house at less than market value. By adjusting your purchase price based on market conditions, thus lowering your total investment in a property, you can make money in any market. The following list offers some general guidelines for gauging your total investment in the three main types of housing markets: Increasing: When home values are rising, your total investment in the property, including the purchase price, closing costs, renovation costs, holding costs, and selling costs, shouldn't exceed 80 percent of its estimated resale value. Flat: When home values are steady, limit your total investment in the property to 70 to 75 percent of the estimated resale value. Decreasing: When homes in the area are decreasing in value, invest no more than 60 to 65 percent of the property's estimated resale value. For example, to flip a house you expect to sell for $200,000 in a flat market, you may buy the house for $120,000, spend $20,000 fixing it up, and use $10,000 for other expenses (such as mortgage payments, insurance, utilities, selling costs, and unexpected bills). Your total investment is $150,000, which is 75 percent of the estimated resale value. In an increasing market, you can invest a maximum of $160,000 (80 percent of $200,000) in the property. In a decreasing market, you can invest a maximum of only $130,000 (65 percent of $200,000) in the property. After you decide how much you can afford to invest overall, adjust the purchase price accordingly. Don't expect to make up the difference in your other expenses (including renovation and holding costs). On the surface, these numbers suggest that you stand to make more in a declining market. You invest a maximum of $130,000 in the hopes of selling the house for $200,000, but in a declining market, you can't count on selling the house for $200,000. You may have to drop the price to $180,000 or less to price it competitively. By adjusting the total investment down in a down market, you simply reduce your exposure to risk. In any market, you want to earn at least a 20 percent profit for your time and effort. Don't let a slow market slow you down. If you see a gaggle of homes for sale with recently reduced asking prices, the market in that particular neighborhood may be starting to soften. This softening may signal a great buying opportunity, but you need to re-evaluate your resale estimate as well.

Article / Updated 08-22-2018

Each listing contains a deluge of details about the property, all of which can be very helpful in your search for a flippable property (see the a sample listing). Some of these details, however, are more useful than others. Focus your search on the following golden nuggets: List price: Now that you’re looking at listings of only those homes in your price range, examine the list price (found in the upper right corner) and compare it to that of other comparable houses in the same area. An inordinately low price can signal a buying opportunity, or it can raise a red flag, making you (and others) wonder, “What’s wrong with this one?” List date or time on the market: How long has the home been on the market? You typically find your best opportunities in homes that have recently been listed (in the past couple of days) or in homes that have been on the market for a couple of months. A home that’s not selling may be overpriced for the current market. In many cases, the longer the seller holds out, the harder it is to sell, and the more desperate the seller becomes. This cycle can signal a buying opportunity now or in the near future. Your agent can tell you the average time a home is on the market in any given neighborhood so you can properly gauge what’s considered “a long time.” Remarks: Near the bottom of every MLS listing is a Remarks or Property Description section that offers additional bits of information. Look for key terms, such as “sold as is,” “handyman’s special,” “in need of a little TLC,” or “needs a little work.” These phrases translate to “You’ll get the house for less because the current owner doesn’t want to clean, paint, or re-carpet.” Agents may also be able to download the seller’s residential disclosure, which contains additional details on what works and what doesn’t, whether the property has ever had biological contaminates (such as mold), how old the roof is, and so forth. Nothing on the MLS is the gospel truth. Sellers and real estate agents alike often estimate room sizes or make mistakes when entering details. Approach all prospects with a discerning eye.

Article / Updated 06-25-2018

Many eager, ill-informed investors become overenthusiastic about the big picture and lose sight of the critical details that can make or break a deal. They pay too much for a property, underestimate the cost of repairs and renovations, fail to inspect a property or research the title, or sign contracts that they don’t fully understand. Here are ten common house flipping blunders to help you avoid costly mistakes and maximize your profits from the start. Falling for a Scam Money attracts entrepreneurs, but it also attracts thieves. When you flip a house, you stand to earn tens of thousands of dollars on a single transaction, but being successful requires determination, diligence, and hard work. Don’t let anyone convince you otherwise. Don’t be a sucker. Be on guard for the following threats: Get-rich-quick schemes, cash-back-at-closing schemes, no-money-down deals, and anything else that sounds too good to be true Partnerships, especially those that require you to take on all the risk, supply most of the money, or do most of the work Anyone who offers to take care of everything for you Speculating on the Housing Market Like the stock market, the housing market has its ups and downs. In a hot market, investors often become infected with irrational exuberance — the belief that current appreciation rates are an accurate representation of future rates. They overpay for properties, expecting them to appreciate, and when the market flattens or takes a dive, they’re stuck with a property they need to sell at a price no buyer is willing to pay. Don’t bank on double-digit increases in housing values, and be prepared with plan B. Waffling on an Obviously Good Deal Some investors experience paralysis by analysis. They overanalyze a great deal and can actually talk themselves out of it, or they waffle until another investor shows interest, and then it’s often too late. When you see a good deal, act quickly. You don’t necessarily need to buy the property right away, but by making an offer on the property, you can tie it up for several days, so you can research the title and inspect the property. Backing Yourself into a Contractual Corner Very rarely do people hand you contracts to sign that protect your rights or interests. They hand you contracts that protect their rights and interests. Before you sign a contract or purchase agreement, read it carefully and make sure that it has a weasel clause — a legal back door through which you can make a graceful exit. Failing to Inspect the Property before Closing on It Don’t rely on the seller’s claims and disclosures. The real estate community has a saying: “Buyers are liars, and sellers are worse, and sellers by owner eat their young.” Have the house inspected. A city inspection is best because it provides you with an inspection team consisting of a professional plumber, an electrician, a heating and air conditioning specialist, and a builder (for structural features). In some areas, however, city inspections are unavailable or are performed only on new construction; if that’s the case, have a trusted contractor inspect the property with you. If you’re buying a house at a foreclosure sale, obtaining a thorough home inspection before handing over the cash may not be an option, but you should inspect the home yourself as thoroughly as possible. Drive by the house, inspect the outside, and do what you can to get inside to take a look around. The less you know about a property, the higher you should set your margin to cover unexpected costs. Do a final walk-through a half hour before closing to be sure that the house is still in the same condition you bought it in and that what you’re expecting to be included in the sale is still on the property. It’s better to resolve any issues before you close; you have no recourse after. Assuming the Title Is Clear Anyone can sell a property. Even people who don’t own a property can sell it. Some con artists wait until the owner takes an extended vacation. They move into the house, pose as the owner, print out a fake title, and sell it to an eager but clueless buyer. Sometimes, they sell the house to several buyers! Another possibility is that a homeowner may try to sell you a house without telling you that the property has multiple liens against it. Unless you research the title and have the title company perform a title search, you can’t be sure that the title is clear or even valid or that the person selling the house really owns it. And if you’re not 100 percent certain, don’t buy the property. Underestimating the Cost of Repairs and Renovations When a contractor tells a homeowner that a complete kitchen remodel costs about $30,000, the homeowner acts like one of those old geezers who grew up during the Great Depression, when you could buy a candy bar for a nickel. Beginning investors often experience that same sense of sticker shock when they hire contractors to perform repairs and renovations. Just make sure that you have your sticker shock before you buy a property, not after you own it — when it’s too late to do anything about it. For necessary repairs and renovations, you should have an accurate estimate of all costs before you buy a property. You can jot down notes while you’re inspecting a property and then consult repair and renovation services to obtain estimates. Doing Shoddy Work to Save Money Sellers have all sorts of tactics to cover defects in a home. They may carpet over a floor that has extensive water or termite damage, pump out a septic tank that’s gone bad so the toilets keep flushing for a couple more months, or install wood paneling in the basement to hide defects in the foundation. As an investor who wants to remain in business, you should treat these tactics as taboo. Don’t sell your soul for a few thousand dollars. Over-Improving a Property Transforming a bungalow into the Taj Mahal may be a noble vision, but it ultimately lands you in the poorhouse. Know the housing market in your area and routinely visit open houses to remain abreast of current trends and market demands. Gauge repairs and renovations to meet or slightly exceed what’s currently selling in your area. Your renovated home should be more appealing than comparable homes in the area, but not excessively more appealing. Forgetting to Pay the Taxes In the flurry of flipping, taxes are easy to overlook, especially property taxes. Forgetting to pay your taxes, however, can further complicate your flipping operation, and back taxes and penalties can take a big chunk out of your future profits. Set aside a certain percentage of your profit from each flip in a separate account and pay your taxes out of that account. This separate account reduces the temptation to spend the money you owe to the government. If you fall behind on taxes, catching up can be tough.

Article / Updated 03-08-2017

When you're just getting started, be sure to pick an easy property to flip — a great house that's merely cosmetically challenged. Then make the following improvements: Clean everything thoroughly. Repaint the interior walls, all white. Install new wall-to-wall carpeting where it makes sense to carpet. Replace all light-switch and outlet covers. Spruce up the landscaping. The idea is to freshen up the house on the cheap to give it a nice, clean, manicured appearance. If possible, time the sale for spring or fall, when demand is typically higher or be prepared for the house to linger on the market if you plant your For Sale sign in the winter.

Article / Updated 03-08-2017

Flipping houses is an expensive endeavor. You need money to purchase the property, renovate it, pay the bills for the duration of the project, and sell the property. Where will you find the money to finance your house flips? Here are a few sources to consider:: Your own savings Home equity loan or line of credit (on your current home) Bank loan (you'll need cash for a down payment) Personal loans (from friends or family members) Government loan (if you're buying from a government program) Hard money loans (from investors) After you purchase a property, you may be able to finance the repairs and renovations by refinancing to pull equity out of the property.

Article / Updated 03-08-2017

A key first step to profiting from a flip is not to pay too much for a house. When deciding how much to pay, estimate the amount you can reasonably sell the house for after fixing it up, and then subtract your expected costs, which include the following: Purchase price Cost of repairs and renovations Any back taxes due on the property Holding costs (property taxes, utilities, insurance, interest payments, homeowner association fees, and so on for the time you expect it will take to buy, fix, and sell the house) Any agent commissions and closing costs when selling the house Aim to earn at least a 20 percent profit after subtracting all costs.