The real estate market continues to attract aspiring entrepreneurs. Even after the economic downturn and difficult conditions, real estate continues to be one of the safest investments you can make. Many people rode the boom in the late ’90s to a career in house flipping, essentially buying a property that needs work, fixing it up and quickly turning it around for sale at a tidy profit. It’s an attractive career choice, one that will keep you in charge of your time, your finances and your level of commitment. But even though it can be a fantastically profitable business strategy, it doesn’t work for everyone. It takes a lot of money invested up front, and unforeseen challenges or expenses can leave you in a devastating hole. That shouldn’t deter you from giving it a shot if a career flipping houses is your dream. So here are five tips every aspiring house flipper should keep in mind as they launch their business.
Create a budget, and stick to it no matter what. Any new business, regardless of the industry, will have a tight profit margin at the beginning. So with house flipping, where any small mistake can quickly eat up that margin, creating a budget is incredibly important. Understand the basic operating costs you face, as well as the costs of any particular project inside and out, and know what you need to do to bring the job in at the right price.
Determine what house purchases are best for you. You may be tempted to diversify, but it is a good idea to stick with one type of house at first and expand once you have a track record of success. Focus in on one neighborhood or area and a specific type of house, and perfect that work. Do the research to determine what sorts of houses are selling the fastest, and what elements in particular seem to lead to a quick sale. Understand the average cost of a home in your area of choice, and don’t overspend to pick up a property, even if it’s incredibly enticing.
Keep it cosmetic at first. You may think you are ready for any size project, but to optimize your chances of success you should start your house flipping career with properties that only need cosmetic work. Target old or ugly houses that are otherwise in reasonably good shape. Houses that primarily need work outside, such as new paint or siding, or upgraded landscaping will be the quickest and easiest jobs to tackle. With interiors, look for homes that have cosmetic issues such as old carpeting, holes in the walls, or stains. You’ll easily be able to handle these challenges, regardless of your construction experience, and it will help you put some quick successes into your business.
Maintain your personal credit. House flipping can’t happen if your personal financial history is spotty. You’ll be applying for financing several times a year, and you’ll need to secure the best possible deals in order to keep your business afloat. Regularly check your credit, and resolve any mistakes or issues you find as quickly as you possibly can.
Avoid major structural issues. You may have found an incredible property that you can’t pass up, but reconsider if the job will involve a major remodel. Roof, plumbing, electric or foundation issues can eat through your budget, and may not always get resolved the first time through. These will also require loads of permits and paperwork, and will affect the future home insurance rates, so keep things simple at first and you’ll be much better off. Feel free to expand into these areas as you gain experience, but only once you’ve built up enough capital to survive unforeseen incidences.