So, here’s how it works. You quit your job, you invest all of your savings into a house, you renovate that house and walk away with $100,000… That is the glamorous idea that so many “soon to be” general contractors have when it comes to flipping a house. The reality of the flipping game is much different than what is portrayed and there is a very thin line between making money and going bust.
If you are thinking about flipping a house, here are a few things you should know before diving in:
1. You’re not going to make $100,000 off your first flip.
For whatever reason, first time flippers have this idea of making $100,000 off a property. The truth is your first flip will be more of a learning experience than anything else.
You will learn the ins and outs of purchasing material, you will learn what is better to hire out than doing yourself, you will learn that you can’t be best friends/drinking buddies with contractors and you will certainly learn that it isn’t as glamorous as you initially thought.
2. Going overboard on finishes rarely pays off.
There are a lot of really cool things that you can do to a house but a lot of items don’t necessarily translate into a higher sale price. You need to be aware of what the local market will bear and have that reflected in the finishes you choose.
If you invest in $8 per square foot hardwood flooring and custom cabinetry in a market that commands only $500,000 for your housing type, you likely won’t be realizing the return on your investment.
3. Not every dump is a good candidate for a flip.
There are a lot of houses in need of work, but if you aren’t careful you might be buying “fool’s gold”. Some properties take much more time and money than others, which can greatly cut into your profits.
This is where the knowledge and skill of your realtor will really pay off because they will know the price points of any specific area and be able to asses whether or not you are able to make a good enough profit.
4. The little things matter A LOT.
This is unfortunately the biggest mistake most people make when flipping a house. By the end of the job they get tired and just want to get out and overlook the little details.
The problem with that is the little details are what the consumer notices the most and they will affect your value more than you think. When you forget to clean up garbage, touch up paint, caulk around the sink or connect a light fixture, buyers start to wonder what else is wrong that they don’t see.
Make sure your finished product is truly finished before putting it on the market.
5. Design matters more than you would ever know.
You might know how to put up drywall and plaster and sand it beautifully, but the colour of paint you put on it will have more of an effect on the value.
No word of a lie, I am currently spending time helping one of my flippers re-paint their house because they thought it would be cool to do a two tone blend of maroon and beige in the living room and dining room. That colour choice would easily take $10,000 of the price of the home because of how hideous it looked.
Make sure you are aware of what is trending in design and if you are unsure, it is worth hiring someone to help you.
6. Staged homes will sell faster and for more money.
The renovations and finishes in your home can look outstanding and you may feel that staging isn’t necessary. It is a hard thing to argue when you see such beautiful work but the fact is that buyers like to visualize themselves living in a house and it is much harder to do that with no idea of furniture placement.
Most buyers wonder things like how a sectional couch would look in the living room or if a king bed would fit into the master bedroom, so show them that it can! You have the ability to showcase the space and use items that can make rooms look really big and appealing.
I have a storage unit filled with furniture because I know how valuable staging is to my clients.
7. Time Value of Money is very, very important.
Your time is your biggest asset when it comes to flipping houses. If you are stuck carrying a house for several months, not only are you having to make additional payments, you have all your capital tied up and can’t move onto the next house.
If you have two offers and one is for $10,000 less but will close 60 days sooner, it is actually worth much more money than the other offer when you factor in the value of your time.
8. Look at the big picture.
The first question I ask every home flipper is “how much money do you want to make a year?”. If you are going to make this a career, then you need to start thinking of it as a career. Instead of thinking how you can make $100,000 off every house, you should start thinking of how you can consistently make $100,000+ every year.
This allows you to have realistic goals and not get discouraged if you have one or two properties not sell for the exact price you wanted. The best flippers are able to be in and out of a house within 60 days and because they have mastered that, their profits continue to grow.
9. It will get easier.
The first flip is a lot like the first year in real estate… if you can see the light at the end of the tunnel and get through, the next one will be a lot easier.
You won’t make rookie mistakes twice, you will know how to make your money last longer and you will have more confidence. All of that will contribute to a better experience on the second house and you will love the business.
I’m not just a know-it-all realtor who decided to write about flipping a house, I was the guy with wide eyes seeing all the dollar signs and lured in by the prospect of making millions. Turns out, I made every single rookie mistake and I was lucky that I was able to break even on my flip.
Since then, I have learned so much about the ins and outs of flipping a house and have been able to help many clients turn it into a career that they love.