Flipping Houses For Dummies. Roberts Ralph R.

Flipping Houses For Dummies

quick profits. Many investors focus on a niche market, such as foreclosure properties, HUD properties, or For Sale By Owner (FSBO) homes.

The strategy you ultimately settle on is yours to invent. What’s important is that you have a strategy and the system and resources ready to execute it. Before your first flip, you should have these essentials in place:

❯❯ Cash or financing not only to purchase the house but also to cover holding costs and the cost of repairs and renovations

❯❯ A plan for repairing and renovating the property (such as buying low, applying makeup, and selling high, or living in your flip while you renovate it)

❯❯ A realistic estimate of the costs of repairs and renovations and the monthly expenses for holding the property

❯❯ A schedule for completing the project

❯❯ Reliable contractors who can begin working on the property immediately

❯❯ A date on which you plan to put the house back on the market

Plan your flip at least as carefully as you would plan a two-week vacation. Chapters 3 to 5 help you lay the foundation for a successful flip.

Building an All-Star Team

When you’re gambling with more than $100,000 of your own or someone else’s money, learning by trial and error can be catastrophic. A safer way to develop the skills and foresight needed to reduce costly mistakes is to learn from others. Develop your own house flipping team and rely on the following professionals to guide and educate you:

❯❯ Real estate agent

❯❯ Financier/lender

❯❯ Accountant

❯❯ Title company

❯❯ Appraiser

❯❯ Home inspector

❯❯ Real estate lawyer

❯❯ Contractors

In Chapter 4, I describe the role that each of these valuable individuals plays on your team, and I provide some criteria for selecting the best of the bunch.

Hiring a pro may increase your costs but can save you a considerable amount of money in terms of time, doing the job properly, and avoiding costly mistakes. Just be sure to calculate the cost into your investment when determining how much to pay for the property.

Finding and Buying a Flippable House

The most critical stage of flipping a house is finding and buying the right house to flip. Buy a lousy house in a lousy neighborhood for more than it’s worth, and you’ve already lost the game. Finding a house that’s dripping with potential for 20 percent to 50 percent less than you can sell it for is quite a challenge, but as a flipper, that’s the fun part. Flipping is an adventure, a treasure hunt, and a poker game all rolled into one. Finding and buying a property is a four-step process:

1. Scope out a fertile neighborhood – often an area with homes that are at least 20 years old.

See Chapter 6 for details.

2. Zoom in on a dontwanner – a distressed property that the owner obviously doesn’t want or can’t afford to keep.

A distressed house usually has a distressed owner. See Chapters 7 to 9 for various ways of finding distressed properties.

3. Research the property carefully and calculate the most you can pay for it and still earn a decent profit.

You should be fairly certain that you’ll earn at least 20 percent for your trouble. See Part 3 for more about researching and evaluating properties and calculating a maximum purchase price.

4. Haggle with the seller to purchase the house at a price that virtually ensures that you’ll profit from the flip, as I explain in Chapter 13.

In some cases, you won’t be haggling with sellers but bidding at an auction; see Chapters 8 and 9 for details on finding and buying properties in foreclosure and other special markets.

Rehabbing Your Fixer-Upper

Buying a house to flip is like buying a beat-up antique at a garage sale. You got the house for a bargain because it needs work that the seller hasn’t the time, money, or desire to do. By cleaning up the joint, fixing whatever’s broken, and doing a few renovations, you can bring the property up to market standards and sell it for its full market value. In the following sections, I walk you through the types of repairs and renovations you can make.

Planning repairs and renovations

Repairs and renovations require careful planning and execution to keep them on schedule and within budget. Before you begin, prioritize your repairs and renovations so you know what’s most important; I give you all the tools and tips you need in Chapter 14. Invest your time and money in the repairs and renovations that promise the most bang for your buck, and then if you need to trim costs, you can skimp on the less-important stuff.

Schedule the work so that it proceeds logically. If you install new tile and carpeting before painting the walls and ceiling, you risk ruining the new tile and carpeting. A good rule of thumb is to work on the infrastructure first – the foundation, electricity, plumbing, heating, and air conditioning. Then, work from the top down, finishing with the floors. Likewise, depending on the location, you may need to schedule curb-appeal renovations in the spring, summer, or fall.

Applying makeup

The ideal house for a first-time flipper is one that requires only cosmetic work – what I call makeup. Cosmetic work, covered in Chapter 15, includes the following low-cost repairs and renovations:

❯❯ A fresh coat of paint throughout the house

❯❯ New siding, fresh paint, gutter replacements, and other external tweaks

❯❯ New wall-to-wall carpeting in any rooms that need it

❯❯ New light fixtures

❯❯ New outlet and light-switch covers

❯❯ A thorough cleaning inside and out

❯❯ Window washing

❯❯ Storm window and door repair or replacement

❯❯ Lawn mowing, weeding, and trimming trees and shrubs

Cosmetic repairs don’t add as much real value to a house as, say, a new kitchen may add, but they attract buyers. Often a house is undervalued simply because it’s unkempt.

Tidying up the exterior

Curb appeal is everything when you’re trying to sell a house. If prospective buyers pull up in front of a house that looks disheveled, they’re likely to pull away before you have time to open the front door. To sell your house for top dollar, it has to make a good first impression. It must have curb appeal – a fresh, well-manicured appearance that draws people into the home.

Chapter

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