You’ve seen people do it on TV, and now you want to buy and flip a property for profit. While it might seem simple on the screen, it’s easy to make some basic mistakes during the process. Here are some of the biggest tips you need to succeed!
Build Your Credit
Unless you have enough cash to flip a property, the first thing you need to do is build your credit. Since the financial crisis back in 2008, lenders are tougher on borrowers. Therefore, you’ll need a strong credit score to borrow money. If you haven’t checked your credit report in a while (or ever), know that you’re entitled to review your score from one of the three national reporting agencies (for no charge!).
It’s one thing to borrow money to purchase a property, but what if the renovation process costs more than expected? Will you have access to another source of funds? In the past, plenty of people have encountered problems after not borrowing enough.
Before investing in any property, understand that it takes money. As well as purchasing the property, you need to pay to renovate while having some money tucked away for a rainy day. Talking about rainy days, it could be that weather affects your project or an external factor causes issues (just as we’ve seen with the pandemic!).
Research, Research, Research
If you want to prevent problems, you need to do research (and lots of it!). What type of location do you want for your property? Buying a property is fantastic, but what if it’s not in a desirable area? You could get stuck with the property for many years (or accept a lower price than hoped). If possible, always choose a property that is in demand, or an area that is growing in prominence.
While researching, you also want to start talking with construction companies. Elsewhere, make sure you understand the fees behind the purchasing and selling process. The last thing you want is to accept a price only to then realize that you’ll make a loss after all the fees. Understand all fees, the cost of renovation, and the ins and outs of real estate transactions.
Consider the 70% Rule
When flipping a property, you almost need to work backward. How much will a be property worth after you’ve repaired and renovated it? According to the 70% rule, you should never pay more than 70% of its future selling value minus the cost of repairs. As a basic example, let’s say that a property will be worth $300,000 after repairs. However, the repairs will cost $40,000.
In this example, 70% of $300,000 is $210,000. Once you subtract the repair costs, you should only pay $170,000 for this property. If you’re a beginner in this competitive world, this is a solid rule to follow.
One of the biggest mistakes that you can make is choosing to wait until everything is finished until you start talking to buyers. Ultimately, this is too late, and the property is going to sit empty for a while. Instead, network with potential buyers even while the improvement is ongoing. Not only will you potentially make a sale, but you also build a positive relationship with buyers while also learning more about what they desire in a property.
Replace Big Dollar Items If Necessary
- Roof Replacement
Check to make sure your HVAC unit is working correctly. A home without heat or air conditioning won’t be appealing to a potential buyer.
Replace all appliances that don’t work, and update anything that is terribly outdated. New appliances can help the home sell quicker.
As a final bonus tip, prepare to work hard because you’ll need grit and determination to succeed. Consider contacting an experienced property flipper to act as your mentor and always be aware of changing regulations, listings, and foreclosures.
Have fun and good luck!