The 10 Commandments of Flipping A House

From Real Estate writer and investor Ethan Roberts is advice for investors to follow when choosing a home they'd like to flip.  While every investor needs to take into consideration their local real estate market including trends, prices, etc., it is great general advice to follow. We will absolutely work with you to find the best investment, the best way to make a profit and see you through the whole process!

The 10 Commandments of Choosing a Profitable House to Flip

By: Ethan Roberts

These days a large number of real estate investors, both new and experienced, are looking for good homes to flip (re-sell quickly at an increase in price).  But not every home, even if it’s a foreclosure, is going to be profitable as a flipper.

Buying the right kind of home on a flip can mean the difference between making a lucrative profit versus barely breaking even or enacting only a small gain.  Why toil for weeks on a property unless we can realize a substantial profit?  The objective should be to maximize our profit potential from the start, while reducing overall risk.  To that end, I have created the following 10 commandments to help you achieve that goal:

1. Thou shall choose a home with a good location.  Location is still the most important aspect of real estate investing.  Homes that are close to major thoroughfares, good schools, nice restaurants, shopping venues, and other desirables will sell the quickest and for the best price.  Other good locations include homes on or near the ocean or other large bodies of water, and homes near popular parts of town or nightlife.

2. Thou shall choose a home in a decent neighborhood.   No matter how inexpensive the home may be, very few buyers want a home in a high-crime area.  Check the local crime statistics to avoid buying in a bad location.

3. Thou shall choose a home that is not super unique.  While there are many beautiful homes that are unique in design or features, many potential buyers are easily scared off by homes that are too different from other surrounding homes, or so unique that they offer challenges to normal living routines.  Cookie cutter homes may appear to be boring, but they sell more quickly and for more money.

4. Thou shall choose a home that is surrounded by other nice homes with no eyesores.  Few buyers want to live next door to a house with garbage in the yard, cars parked on the lawn, or a humongous boat in the driveway.  You can turn a home into a palace, but if any of the homes surrounding it look awful, it’s going to be a tough sell and garner a lower price.  So when you are viewing homes, look carefully at the surrounding homes as well.

5. Thou shall choose a home built in 1978 or after.  Homes built prior to 1978 may contain lead based paint, and as such will require that you adhere to the Renovation, Repair, and Painting (RRP) laws of the Environmental Protection Agency when rehabbing.  The law makes working on these homes much more time-consuming and expensive.  You have to document every single renovation in case of an audit.

Failure to follow the laws may subject you to fines up to $30,000 or more per offense!  However, by flipping homes built in 1978 or later, you do not have to adhere to these guidelines because lead-based paint was no longer produced.

But even without lead-based paint issues, newer homes are just easier to sell because they have more of the features that today’s buyer wants.  The closets are larger, and so are the bathrooms and master bedrooms.

6. Thou shall choose a home with a good floor plan.   A good floor plan is one which flows easily from room to room.  Many people prefer the newer and more open floor plans, in which the kitchen is open to the family room, formal rooms are smaller, and the master and other bedrooms are often on opposite sides of the home.  Other features I look for are homes which have a foyer, a master bedroom in the rear of the home, large closets, inside laundry area, and the garage near the kitchen for easy carrying of groceries into the home.

7. Thou shall choose a home where the purchase price plus ALL expenses will give you a comfortable margin of profit on the re-sell.  In order to make a profit, you must know the total cost of sales price, rehabbing, carrying costs (taxes, insurance, utilities, maintenance), and closing costs for both buying and selling BEFORE making an offer.  Your realtor can help with the estimates.

8. Thou shall buy a home that targets the largest number of potential buyers by Affordability.  If you buy an expensive home with the idea of re-selling for a huge profit, that may work, but it could also take a lot longer to re-sell.  If only a few people can afford to buy your home, be prepared to have it on the market for several months, while other less expensive homes sell in weeks or even days in a strong market.

Conversely, if you buy a dirt-cheap home with the belief that anyone can afford to buy it on the flip, you may be fooling yourself.  The likely buyers may have poor credit or too much debt to qualify for a mortgage.  Your best buyer could be an investor looking for a turnkey rental home, and then you will have to settle for a much lower price than what you expected.

9. Thou shall choose a home with a good lot.  Many people prefer a rectangular lot with equilateral sides.  Pie-shaped or other irregularly sized lots may be a more difficult sell, and should be avoided.  It is also important to make sure that the gradation of the land is such that water will flow away from the home when it rains, so there are no potential problems with flooding.

10. Thou shall choose a home that can be rehabbed within a relatively short period of time.  When it comes to flipping a home,TIME IS MONEY.  Every day the home remains unsold reduces your potential profit on the flip.  Carrying costs include homeowner taxes, insurance, utilities, maintenance, and interest if you’re funding the flip with any kind of loan.  So the golden rule is to get in and out of the home as quickly as you can.  For that reason, I prefer to flip homes that are less than 2,000 square feet.

By following these 10 commandments, you will be more likely to minimize your risks and make a big profit on your next home flip.  Good luck!

To read the original article, click here.

Good Investment, Bad Investment

     Some people want to buy a house that is already perfect for them, meets all their needs and they don’t have to do anything at all to improve it besides paint a wall or two.  But for most people, the best quality in a home is potential.  They’d like to mold it into something spectacular in hopes their investment will bring them a sparkling return.  That’s making money work for you.  However, some people get side stepped into thinking any old improvement will get their money back, but it is not so. I’ve put together a few suggestions based on what will maximize return and what will not.  

Good Investment— Kitchens

     This is an area of the home that improving will always come out to your benefit.  Kitchen styles are constantly changing, appliances are always improving.  Compromising between your personal design aesthetic and what will appeal to buyers may give you a guideline when making fixture, appliance, cabinet and countertop decisions.  This type of remodel can span a small to large budget. Just remember that the crazier you go, the less likely you’ll get all of your money back.  If you do decide to go all the way, make it exactly how you want it, because it’s just for you.

Bad Investment— Playrooms. 

      This is a lifestyle decision.  If you have school age children and know you will be staying put for a while, adding a climbing wall or a princess castle will bring hours of entertainment and ignite your child’s imagination.  However, there is no telling if a potential buyer will feel similarly even if they have children, too.  Some might see the space as an office, a home theatre, a place to watch the Super Bowl.  This kind of improvement will most likely have to be undone when you want to sell.  Keeping that in mind can help you decide how permanent you'd like to make that transformation.

Good Investment— Additions. 

     Adding more space to live comfortably and entertain is always a great idea for your home both functionally and for your investment.  It increases square footage and potential in the eyes of a future buyer.  It can tend to be a large expense because of demolition costs, new foundation and additional roofing, so make sure you do it right.

Bad Investment— Small additions. 

     DO NOT just add a few square feet to your home to nudge out a little more space for a bathroom, or to bump out a bedroom.  You will not get your money back, and you will accumulate similar costs as a full-size addition.  You’ll still have to break down walls and lay additional foundation for space that will unlikely recover the cost.

Good Investment— Curb appeal.

      The outside of your home is one of the only ways to attract potential buyers initially.  The exterior is the first thing buyers see when shopping around.  It’s affordable and when done correctly could help you save money on heating a cooling.  Working with what you already have is a good jumping off point, like trimming hedges, mulching, etc.  Or, if your landscaping is already pristine, a fresh coat of paint for your entryway, shutters, or siding, can seriously give your home a facelift.

Bad Investment— Removing features.

     If thinking of investments solely, do not remove features that may prove valuable to potential buyers.  Even if you know you will never use the fireplace, another buyer might see it as a main attraction.

     Other high return renovations to think about are master suites and bathroom updates.  Other poor return investments, but lifestyle improvements are things that cater to your personal interests.  Pools or wine rooms come to mind.

     By all means, make upgrades on your home that will enhance quality of life rather than just focusing on the money, especially if you have growing children and plan on staying there for a while. Just bear in mind that some of those changes may have to be undone when it comes time to put your house on the market competitively. 

Saving for the Future? Think of Investing in Real Estate

It’s true what they say, investing in Real Estate is not for everyone. It’s not a quick get rich scheme, instead it is something that requires time, patience and most importantly planning. What is funny about this logic is that it is not much different than investing in other investments and it could yield a very high return if done right. Real estate is a tangible good as opposed to other type of investment portfolios so its value doesn’t decrease as quickly as some other riskier ventures, but it does depend largely on the economy. 

So what are some things that you may want to consider before jumping the gun and investing in a property? 

Think Longterm

You’ll need to have all your personal finances in order and realize that this is something that make take a few years before it really starts paying off, it requires an upfront investment that can later create income by being rented out. Make sure that you plan for this from beginning to end, it is also smart to keep an exit strategy in your back pocket in case things turn sour. 

Be Realistic

A lot of people think that getting a bargain home is a great idea, that they’ll put it in a couple of thousand dollars and have something that is ready to move in after light repairs. Take your time and go through homes carefully, or even better get a real estate agent that knows what they are doing so they can ensure that you are getting a home that will eventually pass a proper home inspection. Don’t take projects that you think you’ll be able to fix on your own, most often times than not, you’ll need to hire a contractor to help. A good real estate agent can help with most of these things, and honestly they should!

Location, location, location

Pick a neighborhood with a centralized location or an up and coming area, good schools and not too far from city centers. Your next step is to check to see how much you will get for the property if you rent it out, does this cover the mortgage and all other costs associated with the purchase? If not, then you may be looking like at a very good investment. 

Ask yourself these questions because like i’ve said before this type of investment is not for everyone. Take your time and don’t rush into anything that quickly because this is something you will own for many years to come. 

As always, give me a call or shoot me an email if you have any questions about investing in Real Estate, especially if this is your first time, i’m here to help!

-Rhonda