The housing market has made some great improvements in the past year and despite that there are still some great opportunities for those looking to buy, renovate and sell real estate. Short sales and foreclosures can still be found and at great prices. Before you jump into the flipping business it's important to do your homework. Here are some tips to make your house flipping adventures successful ......
Have your Money Ready
Be sure to get pre-qualified by a mortgage company before you start looking. It's not as easy to get a conventional mortgage today as it was 8 years ago. If you cannot get conventional financing, there are creative ways to purchase a distressed property. If the seller is not carrying a mortgage on the property it's possible they may consider a Purchase Money Mortgage. A PMM is simply when the seller acts as the bank and holds the mortgage. Many sellers will entertain this as an option if you agree to a two or three year balloon. Because you're flipping the property, you should be able to pay off the mortgage within a year or sooner. If you have cash to purchase the property this will not only simplify the process but will give you more negotiating power. Cash is king and always will be.
Assemble your team!
Before you get out there and start putting in offers you must assemble your team of professionals starting with a Realtor. When choosing a Realtor be sure to ask how long they've been in the business and if they're real estate investors themselves. Real estate school doesn't teach the ins and outs of a transaction. Experience is key when choosing a Realtor. You will also need to have onboard a carpenter, electrician, plumber, painter and general handyman. Get prices up front so there are no surprises.
Look for Potential
Most buyers see an old kitchen with the cabinets falling off and run for the hills. When I walk into a house with holes in the drywall, stained & smelly carpet and a kitchen that looks like it was built during & went through World War II, I look beyond the mess and notice the layout instead. The most important thing to look for when searching for a flip is a nice floor plan that would be appealing to a buyer. Drywall is cheap and depending on the size of the kitchen, cabinets are not that expensive either. Keep in mind, kitchens and flooring sells homes.
Know your Market & Do the Math
Find out what comparable properties are selling for in the area you're looking. When figuring your improvement costs don't forget to add one year's taxes, insurance and water & sewer. Also, be sure to figure your closing cost when you purchase such as title insurance, survey and bank fees (if getting a mortgage from a bank). Don't forget your closing costs when you sell such as transfer tax & Realtor commission.
Stick with a Neutral Design
Just because you're a Ravens fan and love purple doesn't mean everyone does. When choosing colors stick with neutral colors such as tan walls and white trim. This appeals to most buyers. Earthy colors are "in" now-a-days so stick with warm earth-tone colors. Hardwood floors are important as well as stainless steel appliances and tiled baths.
Have an Exit Strategy
When doing your numbers before making your offer, be sure to plan on a worst case scenario. Make sure there's enough potential profit so that if you have to sell the property ASAP you can drop the asking price and sell it without losing money. This goes back to knowing your market. Know at what price you could sell the property for in a day if you had to.
- Written by Dennis Allen. Dennis is an 22 year real estate investor and 26 year Realtor in Brigantine Beach, NJ specializing in short sales and foreclosures.