You will find great insight and tips on real estate investing, rehabbing and house flipping techniques on the web, but sorting through the vast amount of information can be pretty overwhelming. We hope this section is both informative and encouraging. Success in this business comes when you make confident, fact-based decisions particularly if you're putting your own dollars into a home that needs renovation!
Nirvana is when you find a fixer-upper that does not require extensive rehabbing and a few cosmetic improvements are enough to re-sell it and make a significant profit. The greatest challenge is finding such properties because they don't stay on the market for long. As real estate investors ourselves, we've learned some hard lessons over the years and to avoid ugly mistakes, here are some tips:
This means not only looking at houses for sale, but tracking how they perform on the market. Rundown properties in desirable neighborhoods will sell faster than those in less attractive areas. But you should also monitor the less attractive areas, as you may find rundown properties that require mostly cosmetic fixes and have great resale or rental potential. It is not uncommon for local residents who love the area they live in to move up to a refurbished home in the same neighborhood.
Knowing what motivates sellers and how they market their properties can make or break a deal. Some will offer to pay closing costs for the buyer, but they will also make up for it by raising the listed sale price. A real deal is when the seller accepts an offer at or below the listed sales price AND offers to pay for your closing costs! The seller does not need to know your plans to fix the property for a quick sale or to put the house on the rental market — if they are motivated to sell, they may also offer to pay for some of the cosmetic improvements.
Assess how much money you will need to allocate for repairs before you can realize any profit on its sale or rental. If this is your first time in the business of flipping fixer-uppers (or renting them), look for houses that require the least amount of structural work. As a matter of fact, AVOID those that need structural work and stick to the ones that will only need some cleaning, fresh paint, new flooring and other minor fixes.
Don't allow for a messy or stinky house to turn you off. Remember all of the popular reality TV shows showing how even the dirtiest, most disgustingly decorated rooms and houses can become showroom material for sophisticated home magazines. You could be standing on an investor's gold mine!
You feel in love with a fixer-upper home that will require some serious structural repairs, now what? The price is just right, the seller is motivated, the location is perfect, the only caveat is the house will need a new roof, new electrical wiring, new plumbing and more! You will want to talk to experienced professionals who will tell you exactly what you're about to get yourself into. Don't blindly trust what the best-known contractor has to say, get as many price quotes and opinions as possible. Ask for client references and do call to find out how happy they were at the end of the project. Big fixes will cost you big bucks and will lower your profit margins.
Most buyers are emotional beings, and they love walking into a property with brand-new, top-of-the-line kitchen appliances, or the look for something truly unique about the property — like a brick wall surrounding the fireplace or exposed wood beams. Be careful choosing paint colors, neutral is always the safest. If the TV shows are not inspiring you, look at model homes, as they have been carefully staged to please buyers of all types.
A lot of people get into the business of house rehabbing-flipping thinking they will be able to retire earlier. It takes a tremendous amount of time and research work to spot a good deal and then maximize the return on investment on the property. Rehabbing costs can quickly escalate and the marketing it takes to resell a property can also add up. Be reasonable with your own expectations and be prepared to see your profit margin shift down to $10,000 from the $35,000 you anticipated. You're still making a profit and most likely at a much better interest rate than any mutual fund currently out there.
If you're serious about buying an investment property, contact us to schedule a free consultation. We will answer any questions you may have and point you in the right direction.