Find the Capital’s Seven Keys to Flipping Houses
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Article by, Brent Virkus
All indications are that the residential real estate market hit bottom in 2011 and has started a significant recovery. This offers a great opportunity to make solid investment returns while limiting risk through flipping houses. In our opinion we’ve got about a 3-5 year period of time from today to take advantage of this once in a generation opportunity. Most of your best opportunities will exist in the foreclosure market through bank owned properties, Fannie Mae and others. The good news is there is still a significant volume of foreclosures headed our way so if you are disciplined in the way you go about things, you have a great opportunity ahead of you!
Find the Capital is very active in helping investors get into the real estate market. To help you take advantage of this once in a lifetime event, we thought we would highlight our Seven Keys to Flipping Houses:
1. You make your money on the Buy not the Sell.
This is probably the most important thing to understand about flipping houses. Make sure you completely understand the market you are investing in and what comparable properties are trading for. So rule number one is to always buy at a significant discount to market. This way you are not banking on the market needing to rise to make your money. Be patient. The right opportunities will come your way if you are disciplined.
2. Make sure you have the ability to “Add Value” to the home you purchase.
The great news is most foreclosure homes or homes trading at a significant discount to market are vacant and in need of moderate to significant renovation. Focus most of your energy on the kitchen, bathrooms and master bedroom. These are the areas that ultimately “Sell” the house.
3. Properly underwrite your Purchase Price
When establishing your purchase price it is imperative to properly underwrite the deal and your potential profit. We do this by starting with what we think we can ultimately sell the house for once it is completely renovated or repositioned. We then take this number and multiply it by what profit margin we are looking to make, which is typically 20%. Then reduce the amount you think you can sell the house for by this amount. This gives you your “all in” cost basis (i.e. what you can pay for the house including all renovation costs, etc.).
4. Have the home properly inspected by a Home Inspection Company.
There are so many things that can be wrong within a home that you cannot see, such as foundation issues, electrical issues, plumbing issues, etc. Make sure you spend the extra money to have the home inspected. It will save you thousands in un-foreseen repairs.
5. Always include a “Contingency” number in your Renovation Budget
When putting your renovation budget together understand you will always find things wrong or encounter issues you were not planning on. To protect yourself from going over budget, always include at least a 10% contingency number in your budget for potential cost overruns. Hence, if your budget is $35,000 add another $3,500 to the budget for contingency making your overall renovation budget $38,500. This is the number you use when underwriting your purchase price as noted in Key #3.
6. Don’t do the work yourself.
Unless you have significant experience in construction and home renovation, always use a licensed contractor or construction manager. The extra costs of doing so will ultimately save you significant time and money on your renovation. Trust me on this one…
7. Sell the house at a Price that it Will Move.
Always put your home on the market slightly below market value. This will get the attention of the realtor community and ultimately could put you in a position of people bidding on your home resulting in you selling at more than your list price. The key selling your home is getting traffic into the home to showcase the great renovation work you’ve done giving someone the perfect “Turnkey” home to move into! You have to get the realtor communities attention.
So how does the every day investor take advantage of one of the greatest investment opportunities of a lifetime? Check out this FREE Video on The Individual Investors Guide to Investing in Commercial Real Estate!
Don’t Be Left Behind…..!