You regularly watch television shows on HGTV and the DIY Network about home improvement and real estate. You get excited when the couples on screen get excited; they’ve found a home under their budget and plan to flip it six months. Fade to black, roll in the “6 Months Later” text across the screen, and by golly, they’ve done it: they’ve successfully flipped the house!
What an exciting venture, you think. Buying up real estate and selling it at above the market value looks like a lucrative way to make money. As a house flipper, you see the potential greatness in what has since become a dilapidated house and restore it to its full glory.
But, as you’re probably aware, things can go wrong. The last thing you want to invest in is a money pit. Some houses aren’t worth saving. Many of the houses flippers purchase and re-sell are acquired through foreclosing auctions. This means bypassing routine housing inspections; what you see is what you get.
In short, house flipping ventures can turn sour. But, there’s a flipside to that coin; house flipping can be profitable, you just have to know what financial calls to make.
Without further ado, here are three things to think about before you renovate a fixer-upper.
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Location, Location, Location
You can find a great house with a lot potential, but if it’s in a poor location, no matter what you do to the house, it will not sell. Make sure the house is in a good location, complete with reputable schools and eateries. The more options people have, the more likely they will purchase the home.
Determine and stick to the renovating budget. If you have a budget of $100k, and the house at auction costs $90k to start, pass on the house. Spending a majority of your budget on the cost of the house will do you no favors when it comes time for the renovation. You will quickly spend over your budget and significantly decrease the chances of turning a profit on the house.
Referred to as the “knock-on effect,” spending a large amount of money in one area will affect the remainder of the renovating project. Look at this way: the wood floors throughout the home are extensively damaged. There are deep grooves and cuts and stains where the previous owner’s indoor pet would relieve itself. The floors need to be replaced. Unfortunately, you went $10k over what you had originally been willing to pay when you purchased the home. Because of this, replacing the flooring will put you way over budget. With this new development, at best you’ll break even if you’re able to sell this house.
Create a budget plan and stick to it. You can’t call yourself a successful flipper if you’re not making a profit.
Determine which spaces need the most work. You don’t need to gut the entire house. This is a mistake green house flippers make; they think that to flip a house, they need to rebuild it from the foundation up. In truth, all that some of the rooms will need are a new coat of paint and updated light fixtures.
The rooms where you should focus your efforts are the spaces most trafficked: the bathroom, kitchen and living room.
Let’s take a closer look at renovating the bathroom. You will want to update the cabinetry, replace the yellowing linoleum floors and replace the bathroom light fixtures. Depending on the age of the home, you may need to replace the sink vanity and the tub. The bathroom’s fixtures are the first things that’ll be clocked, so, they’ll need to be shiny and new to entice homebuyers.
Now that you have a better idea of where to get started, good luck and god speed!
