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With the housing market recovering after the big crash in 2008, house flipping is becoming an increasingly popular investment choice again. “Investors have not lost interest in purchasing and flipping homes. In fact, now that we are seeing home price appreciation they are more interested than ever,” said Sheldon Detrick, CEO of Prudential Detrick/Alliance Realty.
While house-flipping might seem like a daunting prospect for women, many are making it happen. Kymberly Dryden, an experienced Southern California house flipper told girlsguidetorealestate.com that her family business is more successful than ever right now.
What is Going on With the Housing Market?
Buyers are motivated. DoHardMoney.com says that, although buyers in the high-price range are fewer today, those buyers will be more motivated to move more quickly on good deals. Lack of competing prices will make buyers want to close quickly. This will speed up flipping time.
Mortgage rates are going up, but they are expected to remain historically low. This is making mortgage loans easier to secure for most buyers. So, although there might be fewer buyers in the high-price range, there will be more buyers, overall, for all price ranges. And more buyers means your property will sell faster.
There are profits to be made. Daren Blomquist, vice president of RealtyTrac told USA Today, although there are fewer discounted properties available right now, where homes are available, substantial profits can still be made.
So, with house flipping becoming a more viable investment opportunity, here are some tips for protecting your investment:
#1) Know Your Real Estate Market
You should know what types of homes are selling in your area, and for what price they are selling. You need to be able to recognize a good deal when you see it. Know what buyers in your area are looking for. If single-family, mid-priced homes are selling, that is what you want to buy and sell.
“The ideal flip is also the ideal purchase,” says Brandon Turner, senior editor and community manager for BiggerPockets.com, a website for real estate investors, and a veteran flipper near Olympia, Washington. “You find what people are buying and look to create that.”
#2) Know Which Houses are Good Investments
Know what makes a good “fixer” and what doesn’t. Look for houses that need only cosmetic work. The worse it looks, the fewer buyers will want it, but you should see it as a great investment. However, you will want to avoid homes that need structural work. Plumbing problems, issues with the foundation–those will be costly and time-consuming to fix.
Stick to the 70% rule. Experienced flippers will tell you to only buy homes for which the After Repair Value (ARV) is no more than 70% of the estimated sales price. You’ll have to do a good amount of research to be able to estimate this accurately. Look at how much similar properties are being sold for. Zillow, Trulia, and Realtor.com can help you track home sales prices in your area.
#3) Don’t Get Emotional When Choosing a House
When you go to look at properties, remember that you are not looking for a house that you love; you are looking for a house that creates the best investment opportunity. Keep a level head so that you stay within budget and purchase at the right price from the start. If you find a house that you really like, but it is outside of your budget, you’re better off walking away from it. If you go for it and unexpected costs come up, you could easily end up taking a loss on the property.
#4) Don’t Trade Quality for Cost
Do what you have to do to keep costs down, but don’t compromise quality where it counts. For example, you’ll need to find an inexpensive contractor, but make sure to avoid hiring a mediocre contractor who will make mistake after mistake and cost you money in the long run.
#5) Always Get an Inspection
Before you buy the house, take the time to get the house inspected. This process will help you in several ways:
- It will help you determine if there are major problems with the house that could derail your construction efforts and destroy your profits.
- It will point out any needed work, which can help you begin to get organized before the deal is finalized.
- It will help you understand repair costs.
- If you are able to bring these problems to the seller’s attention in time, it might help you negotiate a discount that brings the property back under your maximum purchase price.