Getting into house-flipping can prove to be a lucrative career or a side job, but it’s not as easy as reality TV would have you think. While a home renovation or home-flipping show might make it look like it’s easy to find a property for $200,000 and sell it for four or five times the price after repairs, in reality, you’re looking at profit margins that range from 10 to 15%.
And not to mention the time it takes to sell off a property, which is time that the flipper is waiting to get their return of investment. And like any business, house flipping carries a certain amount of risk, and it takes a skilled flipper to minimize that risk and set themselves up for success.
If you’re reading this, you probably already know some basics: buy low, sell high, put a buffer on your budget for unexpected costs, and choose a good location and active market. But here are some things that a lot of house-flippers wish they’d known when they started:
Put in the legwork
The easy way to do things will generally not get you a good deal. It’s tempting to use a convenient multiple listing service (MLS) platforms like Zillow and Redfin. And while MLS services can be useful in tracking general trends in the market, like price and hot areas, don’t waste your time trying to find a good deal there. Everyone is already on Zillow or Redfin, so your chances of finding a great deal that hasn’t already been snapped up are zero to none.
Avoid real estate agents, find wholesalers
Don’t source properties from real estate agents. Not that there’s anything wrong with working with an agent, but doing so will eat into your profits. The trade-off is that you have to do a lot of research yourself, so consider how much that 3-6% commission that the agent will collect is worth compared to your time. As an alternative, look for wholesalers. Google terms like “we buy houses [name of city]” to find wholesalers who can offer properties anywhere from 40-60 percent of after-repair value and maximize your profit.
Learn to DIY as much as possible
Hiring professional contractors, plumbers, and carpenters increases your cost and shrinks your margins. Even learning some of the basics, like putting up drywall, roof repair, and basic carpentry, can save you thousands of dollars.
Renovate for the best value for money
Pools don’t provide good returns on investment, so adding one can be a waste of your time. Beware of overbuilding. If you add so much value to a house that it becomes much more expensive than the surrounding area, it will be harder to sell. Buyers will think twice about buying a $250,000 home in a neighborhood where everything else is priced at an average of $150,000. Instead, consider making small, value-adding changes that won’t raise the cost by much but will make the house more attractive to a prospective buyer. Consider adding a carport or doing a bit of landscaping.
Choose your fixer-upper
Inspect the house for significant problems like badly-leaking roofs or extensively-damaged pipes. Avoid those, as repairs like that can run you up up a bill in the thousands since you’ll have to call in a professional. Look for properties that have more easily addressed and mostly superficial problems, like peeling paint, badly-kept lawns, broken windows, and dirty walls and ceilings. Those just require time, some elbow grease, and a good power washer.
Sell Low, and Negotiate for higher
It might seem counter-intuitive, but a good selling tactic is to price slightly lower than the average. This will bring in more prospects and offers, giving you the room needed to negotiate the price upwards. Compared to something that is priced higher, it will sell fast. The average property takes anywhere between 40 days to 6 months to sell, and pricing lower will drive you to the lower end of that spectrum, so you can make more money sooner when you move on to your next project.
Know when to quit
Avoid the sunk cost fallacy, and don’t throw good money after bad. If a property turns out to be more trouble than it’s worth, like if you run into substantial, unexpected costs, drop it. Project for the cost of materials and time (10 days to buy, up to 90 days to fix, 2-6 months to sell) and see if it’s worth it.
Consider just selling as-is to recover your investment, or even at a loss, to speed up the selling time. If a property will cost you more to fix and maintain, cut your losses. Also, consider the opportunity cost if you had just moved on to working on another more sale-able property instead.
House-flipping can be a lucrative, rewarding job, but it does take experience and savvy to be good at it. If you follow the advice above, you’ll be well on your way to making some good profit.