If you follow or are involved in real estate investing, you’re almost certainty familiar with the term “flipper”. Due to reality TV shows, the people who do this as a profession have gotten their share of the spotlight. Flipping usually means that a home was bought and sold within a short period of time (usually less than a year). To many flippers this is their full time job.
Those who have been flipping houses for over a few years have seen a steady recovery in the opportunities to flip from the bottom of the recession. Since then, the total number of annual flips has passed over 100,000 units nationally. Even better, house flippers are enjoying record profits. The average gross profit is now $75,900 per home sold. This materializes into a return of 36% on the initial investment. These great returns in the market are bringing in new players, replacing many house flippers who exited the market in the recession.
With many new entrants it is important, however, to learn best practices for investing in real estate by flipping. The 3 traits all successful flipper share are:
- Do Your Homework. While the traditional wisdom of “location, location, location” stands as a starting point for all real estate, the single most important thing is market research. You must know as much as you can about your sub-market, the macro market and the numbers involved in any purchase. The basic formula for all house flippers is to buy below the market, keep your rehab costs in budget, and sell at or above the market. However, each of those steps requires knowledge, a potentially lucrative purchase can go awry fast if you are off with your assumptions. If you are the hands-on type that doesn’t like crunching numbers, consider partnering with someone who does.
- Use Your Brain, not Your Heart. We all know it’s easy to fall in love with the idea of house flipping. The TV shows on HGTV make it look so easy. After all, taking a rundown home and giving it new life is an exciting and creative endeavor. However, never confuse a rehab project with the idea of creating your perfect home. You want to make a house what will sell, not what would be your own personal dream house. That will often mean you choose a different type of flooring or fixture than you would for your own home. Keep your eye on the end goal of providing an attractive home for a potential buyer or renter, not something you would necessarily live in.
- Work within a Budget. This falls in line with the first two habits, use your research and realistic remodeling plans to create and stick to a budget that meets your profit goals. Stay on top of this plan, and you’ll avoid nasty surprises.
If you follow these three tips you should have a profitable endeavor into house flipping.