The real estate sector is booming and producing more and more millionaires faster than most other sectors. For many who are planning to invest in this sector or for those who are already in the sector, getting rich is all that matters (and this is what everyone investing in real estate properties should be thinking about all the time). While there are many strategies that could lead them to this goal, buying and flipping houses or buying and flipping real estate remain the most popular get rich technique, though not one without high risk.
The principle behind this buying and flipping real estate get rich strategy is simple: First, you buy a house (a real estate) at a relatively small amount of money, make some simple aesthetically-appealing renovations, and sell it for an amount that is relatively a lot larger than the total buying and modification cost; you can easily make quite a lot of money. However, flipping real estate or house flipping was, is and will never an easy "get rich quick" strategy. You have to put in a lot of effort, much care to get a really cheap house, a lot of investments, wait some time and even with a great house you may have a hard time selling the finished product simply due to economic meltdown and the fluctuating housing market.
Since it’s easy to wait, and selling the renovated property is not markedly different from selling any other property, what we're going to focus more here is what investors should look for when investing in buying and flipping houses, with little attention paid on remodelingand finally marketing flip house.
Note that, house flipping is not an easy concept. Fix and flipping houses is not something you can spend just a couple of hours a week and be successful. If you fail to put in a reasonable time (commitment) and effort to do things right and mess up any of the parts of a fix and flip, you can be sure to turn a nice profit into a big loss. Make sure you buy a house that needs some work (usually a cheap house), fix it up (renovate and remodel it) and market (sell) the house.
Thus, to be able to succeed in buying and flipping houses, you need be able to:
Evaluate your Capabilities
Evaluate your time commitment. House flipping is not a typical part-time endeavor. Getting the right properties, renovating them, and then marketing the renovated properties need a lot of scheduling and working house during the workweek to get it done. If you are unable to make flipping houses a full-time job, then flipping real estates is not for you.
Evaluate your own renovation skills. To be able to make real good cash flipping houses, you should be able to accomplished basic renovation tasks, such as replacing a toilet, bulbs, and fixing holes in walls, yourself. You will save a lot of money by not paying people to complete such tasks for you. There are also some circumstances where things need to be taken care of immediately, so not having to wait on others is a valuable asset. Saving money in this way may only go to a long way to help your bottom line. Thus, you have to evaluate your own ability to perform these tasks before deciding if house flipping is right for you.
Evaluate your ability to finance a flip. Flipping Real estate simply means, you buy the property first and then self-finance the renovation work, before marketing it. Thus, you'll need the money to do so. Financial institutions like banks generally do not make unsecured loans for this purpose, so you'll need collateral, savings, or both to accomplish each flip project. If you are lucky to secure enough in savings, use it, but if not, you'll need to use a collateralized loan like home equity line of credit (HELOC) or a second mortgage (both of which carry the risk that you will lose your property if you default on the loan). Remember that you'll also need money to renovate and hold the property until sale in addition to the sale price of the property.
Evaluate your real estate market knowledge. You will need to have a good working knowledge on the general real estate market and on buying and flipping houses in particular to be able to make it big as a flipper. While you will need the skill to identify bargain properties, you will also need to know when and where to buy and sell, to be able to get the most return on your money in the shortest possible time. Otherwise, you will be stuck with a loss from holding the property for too long or from the sale. Gain a deep knowledge of the real estate market in your state or area by studying local real estate listing, consulting with local real estate experts or by working in the industry.
Purchasing a Real Estate
Find cheap real estate. Search for cheap real estate in your local area, newspaper, by searching out delinquent mortgages online or through online real estate listings. The secret to a successful house flipping is finding a cheap, decent, and repairable house to be worth the time (commitment), effort (energy and work), and money (finance).
Good sources of cheap real estate comprise regular foreclosure sales, HUD foreclosures, and short sales. Also, divorce settlements and death notices, are other good sources as they tend to precede quick housing sales.
Research the neighborhood. You will need to have good knowledge on the average market value of houses in the area. It's also important to know about the area itself such as the community factors (the quality of schools, security, electricity and portable water and access to public transportation) including other factors that will determine whether that property will be appealing.
You'll want to know whether the area already has relatively low prices houses, is in a transitional phase, or has rising prices. A good source of this information is by talking to a real estate agent or asking locals who knows the neighborhood.
Evaluate the property. Before you decide on purchasing the property, it’s advisable to take a look around and have a building inspector and/or contractor come with you. A building inspector will be able to tell you whether costly work like foundation repairs may be necessary, as such repairs usually get incredibly expensive and will easily put you over your budget. A contractor will be able to tell you an estimate on the total renovations and repairs cost. Remember that flipping houses or flipping real estate is a risky investment so you have to take all reasonable precautions to land on the best deal.
- Avoid exceptionally risky properties (those which you cannot assess the property in person) such as auction real estate listing since they are usually sold as "sight-unseen," meaning you won't be able to tour the property.
- Look for inspectors and contractors by talking to someone who works in real estate sector or searching online. They may have or know reliable inspectors or contractors who does good work and will give you an honest appraisal.
- Ask the contractor what might be the total sum of your investment. This will help give you a decent idea of what kind of repairs you would need if you purchased that property.
- Ask the inspector about the state of the real estate's major systems such as roof condition, electrical system, foundation and plumbing system. These are usually the most costly elements to repair, thus it's always best to find out in advance whether or not these major systems are in good shape.
Determine the costs and value. Before you finally pay for the property, it's important to access your budget and be vest with the anticipated costs. You'll need to access the property to determine how extensive the repairs will be. Then compare the after-repair value (ARV) of the real estate property with the estimated costs and repairs you'll need to put in.
- Search online or talk to a local realtor to learn the market value of other homes in the neighborhood you're thinking of buying in. This is the best way to gain idea of the ARV, which will go a long way to help you in your decision whether or not your investment will pay off.
- You can use an online remodeling calculator. This tool will ask you for some basic information such as the extent of renovations and repair work you're willing to make and the dimensions of the house, and then give you a very rough estimate.
The Carrying costs. This refers to the costs associated with owning a real property that you haven't sold. In addition to the costs of equipment, labor, and the property itself, there are numerous other costs such as carrying cost to consider as you decide on flipping a house. These may include association fees or condo, property taxes, insurance, and utilities such as electric, gas, and water services. You'll also have to pay a real estate broker for his or her services, which can average between 5% and 10% of the sale price of that property.
- The longer you hold a piece of property without successfully flipping it, the more you increase your carrying costs.
- Not all houses sell right away. Even an attractive house in a hot area may be on the market for a while, which can add up costs very quickly. Thus, you may want to have a backup plan, such as living in the house yourself or renting the property, just in case the sale doesn't go through immediately. Some real estate experts advise only going through with your house flipping plan if you are willing/able to hold onto the home and rent it out or live in it for at least five years. Mostly in cases were selling doesn't go as planned.
Determine your maximum offer price to purchase the real estate. Your maximum offer amount can be calculated by starting with the expected retail price after purchasing and renovating (remodeling). Then, add in all closing costs. Get your maximum offer price by subtracting the interest on loans, costs of remodeling, and desired profit from this amount. The result represents the most you would be willing to pay for real estate and can be used in negotiations
Finalize the purchase. You'll have to consider the financing costs in addition to all the other costs (buying, repairing and renovating, and selling the house). If you need to take out a loan to complete the purchase, you'll have to shop around for the best interest rate on a home loan. If everything else checks out and fits within your budget plan, and if you land on a good loan offer or secured enough capital to make the purchase, then you're ready to make an offer to that property's real estate agent.
Remodeling the Kitchen and Bedroom
Estimate the benefit. After the purchased, you have to plan your remodeling strategy. The first step is to evaluate how much a remodeled kitchen and/or bedroom would add to the sales price. If the remodel costs exceed the benefit, the renovation should not be done. Being able to determine how much value will be added can be deduced from studying other, similar homes in the area with or without remodeled bedrooms, kitchens and their recent sale prices.
For your kitchen;
Work with what you've got. You can radically revamp a kitchen without going broke if only you plan carefully and work diligently with the kitchen you've purchased. The easiest and best way to maximize kitchen efficiency and save your budget is to remodel it without changing the location of gas lines and plumbing. That way, you can change the feel and look of the kitchen without radically altering the layout.
Give a wide berth. Wide walkways make a kitchen feel easy to work in and accessible. If you're planning a total kitchen revamp, plan your layout to accommodate for room for residents to cook and walking space.
- Paths that pass the counter and stove should be 48 inches wide to accommodate two cooks, or 42 inches wide to accommodate one cook
- Paths throughout the main body of the kitchen should be at least 36 inches wide.
Keep corners clear. Cabinets and appliances in corners can be tricky. You need to accommodate clearance for doors to swing open and shut, which can leave the corners of the kitchen feeling busy and cluttered. For a smooth, open kitchen, plan for adequate space to swing cabinet doors open, and keep appliances away from the corners entirely.
Install backsplash tiles. Tiles make a great backsplash surface on the walls above/behind counter space and stove tops. You can customize your tiles with patterns, colors, and even materials.
Note here that;
Ceramic tiles are easy to clean and can withstand moisture and heat, but they tend to be more expensive than some other tiling options.
Subway tiles tend to match easily with any kitchen style, and are often cheaper than other tiling options.
- Stainless steel makes an elegant backsplash material that's very easy to clean. It makes any kitchen look sleek and modern, but can be very expensive.
- You should also study housing publications and renovation to determine which backsplash materials are fashionable at the moment. This can help you make the right choice for making your kitchen appear "current."
Make sure appliances are up to date. Consider replacing old existing appliances in the kitchen. Homebuyers expect the appliance quality to be up to date with the quality of the home. Look at similarly- recently priced homes sold in the area. Check on the appliances, if there are new, you may have difficulty selling the home without them.Appliances may include ovens, refrigerators, stove tops, and microwaves.
Consider including an island. Islands allow for kitchens to feel more open and functional. An island can house the counters, stove, eating space, storage space, or any combination of the above.
- Make sure the island mirrors the kitchen's dimensions.
- If installing a multi-use island, look for an island that has multiple levels/tiers.
- Cabinets below the island counter make an excellent storage space. You can easily tuck pots and pans or even dry goods under the island to free up counter space.
- If you're doing your own work and you don't have extensive building experience, you can buy a pre-made kitchen island from a building supply store, or find an old, sturdy wooden cabinet and refinish it. Scrape off old paint and customize the cabinet with a wood stain or paint scheme to match the rest of the kitchen. Or opt for a new, bold color to make the new island stand out.
For your bedroom;
Choose an all-white design. White walls, tiles, and counters can make the bathroom feel more clean and spacious. It can also make an otherwise plain-looking room appear more appealing and elegant, as well as neutral, which is important, since you want potential buyers to be able to see themselves living there
Choose a tile material. Instead of going for the more expensive materials such as marble tiles, you can use ceramic tiling, which is much cheaper, but which can also be purchased with patterns that resemble marble. You can go for predominantly white faux-marble ceramic tiles for an elegant, clean, look.However, you’ll have to understand buyers' expectation to make right decision about materials. Higher-priced houses will have more discerning buyers who will require stone or marble tile.
Maximize natural light. If the bathroom has at least one window, you can make the room feel brighter and more inviting by making subtle changes to maximize the light. You may want to hang side mirrors to reflect the window's natural light and allow for easy grooming.
Use elegant shower tiles. For the floor, you can go for lower-cost ceramic tiles, but when it comes to re-tiling the bath or shower stall you may want a more elegant tile. Marble tiles, though more expensive, can radically transform any shower stall and create a spa-like atmosphere.
Repaint with neutral colors. When it comes to painting your house, it's important to use neutral colors. Colors that are too bland, too dark, or too bold may work for one isolated room, but overall the majority of house should be a color that's right in the middle of the spectrum. Try a khaki, cream, or tan-colored paint to make the house neutral to the eye.
Spruce up the interior. In addition to the bathroom and kitchen, you'll probably need to make some repairs to the rest of the house. Patch up any holes, replace old or worn-out carpeting, replace light fixtures and cabinet hardware and repaint every room (no matter the room's condition). The goal is to make the house look as close to new as possible, while still staying within your budget.
Keep the yard tidy. It's important to make sure the yard well-groomed and watered, and that the exterior of the house maintain. An unkempt or otherwise messy yard can turn off buyers before they even tour the inside of the house..
Selling the Remodeled House
Don't rush it. Just as it's important not to hold onto a property for too long (as you may be saddled with carrying costs and taxes), it’s also important not to rush to get a flipped house on the market too quickly (you run the risk of it not being at its best). You'll have to decide what's right for you and your budget, but the key lies in balancing renovations with costs to make the house as appealing within your budget as possible
Get a qualified mortgage broker. If you fail get the services of an experience mortgage broker, you run the risk of wasting a lot of time on unqualified buyers. Hiring a mortgage broker lets you know that anyone who pursues the property will be pre-qualified, which will help cut down on the time your property is on the market.
Get an experience real estate agent. An agent will help you get a fair cost for your property and can facilitate all of the sales details. Choosing the right agent will help ensure that your sale goes smoothly and quickly. Even though you'll have to pay for an agent's services, it may pay off to reduce the carrying costs and taxes you'll accrue by keeping your house for an extended length of time.
Anticipate sales costs. Selling a house can be very expensive. In addition to the costs of hiring a real estate agent and repairs, you'll need to pay closing costs and capital gains taxes. At the end with all done, the total costs associated with selling a house can add up to 10 percent of the property's sale price.
While flipping real estate or flipping houses is gaining momentum in the real estate sector, it’s never without high risk. Thus, investing in house flipping require a good knowledge on the real estate market, up to date remodeling technique, good taste on design and building materials and a working marketing strategy. Make sure you start off with a relatively cheap property (you can check in real estate listings), and have enough finance to cover the cost of renovation and waiting backup plan in place. One thing is clear, if you are careful enough with house flipping technique, you can easily write your name in the list of millionaires.