As a first-time house flipper, you may mistakenly consider flipping easy. After all, how many times have you seen some random person on TV buy a house, renovate it, and sell it at a handsome profit? Anyone could do that, right? Thatís where youíre wrong.
Remember, even decrepit houses do not come cheap and nor do the loans with which to buy them. Also, you face stiff competition, and renovations sometimes cost more than you thought. Here are a few useful tips for those beginning in the field.
1. Approach the Right Lender
Before you start flipping houses, you have to think about approaching a mortgage lender for a loan. But, as you do, note a few things. On the one hand, traditional lenders always demand a 25% down payment, and this is after checking your credit.
On the other hand, hard-mortgage lenders couldnít care less about your credit, so theyíll loan you as much money as you need. However, theyíll charge you as much as 10 to 15% more interest. For this reason, before approaching any lender, you should check mortgage company reviews on a site like dollar cents for instance to get a clearer view.
2. Buy the Right House
Once you have access to credit, you can buy the right house. Even though this sounds straightforward, it isnít. See, when you buy a house at retail price, any improvements you make on it only add to your final retail price. So, whatís the problem with that?
For one, you might struggle to sell the house. And when you eventually do, youíll make a loss. As a general rule, buy houses selling below retail price, add value to them, and sell them for more for more than you spent on them.
3. Make the Right Estimates
The question now begs: How much value do you add to a house before selling it? To answer this question, you must make the right cost estimates. This means calculating every cost in detail.
Besides the buying price, figure out how much it will cost you to renovate and market the house. Also, throw in the cost of retaining and maintaining the house before you sell it. Whatís more, remember to include property insurance, property taxes, mortgage payments, and the realtorís commission.
4. Get the Right Contractor
Now youíre ready to hire a contractor. Although there are plenty of good contractors out there, you must do your homework before finding one. Before hiring, ask for references and then call these references. And, if possible, also look at the candidateís completed projects before hiring.
5. Donít Overdo the Renovations
With the contractor hired, itís time to get to work, but hereís a cautionary word. Donít go overboard with the renovations. If you do, your house will cost more than other houses in the neighborhood, making it harder to sell. Instead of expensive additions, add a few special but cheap touches here and there.
If you want to be successful as a home flipper, you not only have to know how to spot a good catch but learn how to deal with financing as well. Make sure youíre well informed about every aspect of house flipping and ownership before you even think about buying your first house.