House flipping sounds like the investor’s perfect dream. All you need is to buy a home in poor condition, fix it up and resell it to make astronomical profits. Sounds easy and enticing, doesn’t it?
While flipping homes can be exceptionally profitable, it is also quite a risky venture. Imagine buying a home for $200,000, spending $30,000 on repairs, and then not finding a buyer for a year or more. Not only would you be stuck with mortgage or loan repayments, but you would be facing extra utility and home insurance payments, as well as property taxes. As you can see, you can lose a lot of money in the home-flipping business.
If you want to thrive when flipping houses, you need to be smart, strategic, and realistic. Please don’t go into it thinking that it is a world of rainbows and sunshine. The tide can turn against you unexpectedly as it does even for the best in the industry.
So, how can you make the most of the home-flipping business opportunities without losing all your money? Here’s how to go about it.
What You Need Before Investing in House Flipping
Good credit is an indicator of sound financial health, and you need it to make it in the home buying and reselling business. That is unless you have the full amount required to buy the home stacked someplace.
A good credit score works immensely in your favor when you want to get into the home-flipping business. For one, if you have a stellar credit score, lenders are more willing to finance your purchase. You will not be moving from bank to bank looking for someone to loan you the cash you need.
Second, and most importantly, you will get better interest rates if you have a good credit score. Lenders will see you as a trustworthy borrower with a low likelihood of defaulting on the loan, which translates to lower interest rates.
Before you set your mind on flipping houses, be sure to check your credit score. If it is low, work first to improve it before diving into the business. Try your best to get out of debt, and make a habit of paying all your bills on time. Additionally, avoid relying too heavily on credit cards, as they might work against your efforts to rebuild your credit score.
It is also essential to have some cash at hand for your home purchase. Although banks and other lenders can finance most of your home purchase, they often need you to pay a down payment before they commit to back your purchase. You will need to commit up to 25% of the purchase price with most lenders before getting the loan. If you don’t have this money, your house flipping business will be off to a rough start.
Some people think that they can rely on multiple lenders to make the required down payment for their principal lender. This might work, but it is not a smart move. If you walk down this path, you may soon find yourself riddled in more debt than you can handle, which is not good for your business.
It takes planning and commitment to have the down payment ready before you buy the house, and these two qualities will serve you well even as you get into the venture. Start by creating an automatic savings account, so you have the cash ready when you need it. Alternatively, find a side hustle that can help you raise the extra money for your initial investment in the home-flipping business.
How To Choose a House to Flip
Location, Location, Location
Professionals in the real estate business, like Joyce Property Investments, will tell you that few things matter half as much as picking a home in the right location. The rule of thumb is always to pick the worst home in the best neighborhood. The simple rationale behind this rule is that you can do a lot to improve a home, but there is little you can do to improve a neighborhood. And homes in bad neighborhoods rarely ever get sold.
How can you tell whether a home is in a good neighborhood? Four primary indicators will tell all you need to know about a location. First, what are the employment rates in the area? How many homes are for sale there? How safe is the neighborhood? How are the schools in the area ranked?
A neighborhood with high employment rates shows growth, and people love places where there’s growth. If too many homes are being sold in an area, it means people are moving away, which may be due to a regressing economy or security concerns. Homes in poor school districts are more challenging to sell than those in good ones, so keep this in mind before picking a home.
It is also wise to choose a home close to where you live since you will be visiting the renovation site quite often. You don’t want to spend a lot of money on gas and a lot of time commuting. It makes your business unnecessarily expensive.
The Condition of the Home
Flipping homes is an investment like any other; you do it to make a profit. Therefore, when choosing homes to flip, pick the ones that require minimal renovations. Often, homes that only need some aesthetic improvements are the best for flipping.
This means that the scope of your improvement should be limited to making small but impactful changes. For instance, changing the cabinetry in a kitchen, re-carpeting a home, or having a backyard professionally landscaped are all small changes that can make a massive difference to a home’s value. Invest in homes that need such changes.
Always be on the lookout for fundamental problems in a house. The slightest hint of black mold, a cracked foundation, or a roof that needs to be replaced should sound the alarm bells in your mind. In fact, you ought to bring a professional home inspector with you when you visit the property you wish to invest in. They can help point out serious problems with a house, thus saving you the trouble of investing in the wrong home.
House flipping is currently a popular investment choice for many people. However, it is a business that you should enter with a lot of caution. A lot can go wrong if you make the wrong choices, and what once sounded like a good investment idea can quickly turn into a financial nightmare.
To avoid making some of the common investment mistakes in the house flipping business, be sure to follow the tips on this blog. Strive to make smart moves, and you will not be disappointed with your investment.