House-flipping pertains to the process of buying a property and selling it for a profit. It’s a lucrative source of income. However, it does require substantial capital for you to get started. That’s why most people are scared to take the leap.
As with any other investment, some risks entail this venture. Faulty budgeting, legal issues, and even factors like crime spikes, which aren’t in your control, can leave you with an unsellable house. Nonetheless, you can still learn how to flip a house by researching and reading different resources to equip yourself with the necessary knowledge for this project.
Here are some tips to help you be successful even when flipping a considerably valued house:
1. Consider the Property Type
House-flipping isn’t a straightforward investment. There are lots of factors that influence the value of a property. You must know the different types of homes on the market today and find the best style that suits your needs as well as preferences.
These are the three types of properties that most house-flippers invest in:
- Fixer-Uppers – What most people think about when they hear about house-flipping is buying a residential space, doing the necessary renovations, and selling it for a profit. This traditional method will require considerable time, effort, and money from you. Nonetheless, you still reap significant rewards when the sale is completed.
- Foreclosures – Another typical house-flipping strategy is to buy a property from a bank or auction at a much lower price than its initial value. Remember, though, that you may still need to do some repairs and renovations because the home might not have been maintained in pristine condition, especially if the previous owners were in a tight financial situation that they couldn’t pay their mortgage.
- New Constructions – A new trend in house-flipping is buying newly constructed homes, holding onto them for months, and waiting for the optimal market price before selling. Often, these properties are in massive complexes, which have the potential to drive in several residents.
2. Know the Requirements
Research the specific laws that the state and federal governments imposed on the real estate industry, particularly for house-flipping. Aside from legal requirements, you should also consider your credit rating and cash flow as these factors can dictate how much you can invest.
Unless you have millions of dollars in cash to fund this venture, you must have an outstanding credit score to be able to try your hand at house-flipping. You’ll need to take out a loan to finance renovations of the property. Check your credit report and build it up to get a favorable interest rate from your lender.
While credit is necessary for ensuring that you have money to spend on remodeling the house, you should also have substantial cash-on-hand for down payments and to finalize the transfer of ownership. Avoid using your credit card for the initial payment as you may need to use your balance for home improvements.
3. Understand the Factors that Influence a Home’s Value
In choosing a home to flip, you must be confident that you can sell it to potential buyers. Know the different factors that affect a property’s value and weigh the risks involved in the process. This way, you can evaluate if a particular area is a profitable purchase or not.
Some factors that influence a home’s value include:
- Location – It’s no wonder that the mantra of the entire real estate industry is “location, location, location!” You can beautify a home all you want, but if the neighborhood it’s in is undesirable, then selling the property may be a challenge.
- Condition – The house should be in pristine condition after renovation. Otherwise, the client won’t be enticed into purchasing it from you. The environment of your home can sometimes be more influential than its location. Find residential spaces that have sturdy structures and won’t need too much work to flip.
- Market Value – Check the value of similar homes in the market. Make sure that you give yourself a sensible profit margin. Also, remember that it’s best to buy the worst house in a desirable neighborhood because your house’s value can get a boost from the other properties.
4. Learn to Haggle
Don’t be afraid to negotiate for a lesser price, whether you’re buying a fixer-upper or foreclosure. The lower cost you can get, the higher the profit you can earn from that purchase. Of course, study the market price to ensure that you’re still haggling for a sensible price tag.
House-flipping is a lucrative venture that requires a substantial amount as capital. You can dive right into this project by knowing the type of property that works for you, researching the requirements, understanding the factors that influence a home’s value, and learning to negotiate for a lower price to gain higher profit margin.