You’ve probably heard the term “flipping homes,” and wondered about trying your hand at the practice. Fixing and flipping homes can be quite lucrative, and real estate can be a seriously strong business. However, there are some important considerations to take before you start making offers and calling up contractors.
A lot goes into flipping homes, you’ll want to make sure you have a good handle on a few things. These are your budget, your market, and how much time and money it can take to repair houses before you can flip them. We’ll talk a little bit about what it’ll take to make home flipping in Fresno or Clovis successful and what you’ll have to think about before you get started.
1. What is Home Flipping?
Home flipping is simple in theory; You buy a home at a low price, and renovate it into sellable shape, and sell it for a profit. Here’s the important part, though… You need to find homes that are selling for lower than you can sell them for later. To do this, you’ll need to know our Frenso real estate market and your budget. You will also need to understand how much value you can add to a home. There are two common techniques in home flipping: Micro flipping, and repairing and flipping.
2. Micro Flipping
“Micro flipping” is a short term process of buying and selling almost as is. Instead of making repairs on a home in order to raise its value, you simply look out for homes that you think are selling for less than they could—as is—and sell for a profit. It does carry some risk. If you gamble on a home thinking it has a higher value than it’s selling for, you might be wrong. It can also yield lower profits than repairing and flipping homes, since without making significant changes to the home you’ll be operating within smaller margins.
3. Repairing and Flipping
Repairing and flipping takes a lot more groundwork, and it has its own risks too. Repairing and flipping involves looking for a home in need of repairs or other types of work. You make the repairs and stage the house, and sell it for a profit. This is a solid strategy, but there’s a lot of things you’ll need to take into account before you make an offer on a home in need of repairs. If you’re not aware of all the potential costs, you can end up in the red if repairs take too long or cost more than you expected.
4. Know Your Market And Budget
Before you dive into purchasing a property to sell, it’s absolutely essential that you know our market and your budget. Are homes selling like hotcakes right now in Fresno / Clovis? That’s good for selling, but it might spell trouble for buying. Consider how the market is acting before you start making offers on properties.
What do your finances look like? If you’re using a loan to buy, there is a few things your lender will look at. They will want to look at your debt-to-income ratio, your credit score, employment history and finances. Make sure you know where you stand before you dive into applying for loans and making offers.
5. The 70% Rule
There’s an important rule of thumb for flipping houses—the 70% rule. Simply put, this rule states that you shouldn’t spend more than 70% of what you’re going to be able to sell the property for, even including repair costs. For instance, if you’re looking at a home that might to sell for $200,000, and you estimate that repairs will cost you $40,000, you’ll take 70% of $200,000—which would be $140,000, then subtract the cost of repairs—$40,000, and you’ll end up with $100,000.
Using the 70% rule, you wouldn’t want to offer anything higher than $100,000 for the home. Here’s the math for that:
- After repair value x .7 – cost of repairs = offer price
- 200,000 x .7 – 40,000 = 100,000
6. Getting The Home Inspected
If you’re going to use the 70% rule, you’ll probably want to get a home inspection before making an offer. You’ll need to get the owner’s permission before doing this, as the inspector will need access to the property. If the current owner isn’t amenable to getting an inspector to come in, that might be a serious red flag anyway.
An inspector will be able to tell you what repairs the home will need in order to be safely liveable and up to code. With that information, you’ll have a much better idea of what your repair costs might look like. Getting a home inspection is always a good idea, not only in the interest of safety for future occupants, but also in the interest of making an informed investment decision.
7. Making Repairs
Unless you happen to be a licensed contractor, chances are you’ll be working with a contractor on this process. This part is really important. There are a lot of pitfalls in contracting work on homes to be aware of, and knowing your contractor well goes a long way. It’s important to get the repairs done as quickly and safely as possible for two reasons.
For one, as long as you own the home you’ll be making the payments on it. So the longer you hold on to it, the less your potential profits might be. Two, contracting can cost exponentially more the longer it takes, and you don’t want to funnel all of your money into the contractor’s work.
8. Staging The Home
Once you’ve made the necessary repairs and gotten the home ready to sell, it’ll be time to stage it for selling. An important part of the process is when you “dress up” the home and make it presentable for potential buyers. You’ll want to play to the home’s strengths and emphasize the appealing parts of the home. It’s also important to consider this step in your budget, and there are a few ways you can save money, including using thrift stores and using items you already have.
9. Working With a Professional Realtor
If you’re not a licensed realtor, and especially if you’re new to flipping homes, consider working with a licensed realty professional on your project. From offer prices to home inspections and finding the right contractor, a professional realty expert will bring experience.
They’ll be able to help you find good listings, they’ll have a network of trusted colleagues from inspectors to contractors, and they’ll probably know the local market better than anyone. A lot goes into the process of buying and selling homes. Having someone on your team with networks, experience, and know-how will go a long way to making the process smoother.
The Bottom Line
Flipping homes can be a lucrative investment strategy. The real estate market is always important, and with the right approach, flipping homes can be an amazing venture. But, a lot goes into the process, and it’s important to understand the ins and outs before you jump in. You’ll need to know the market, understand your finances, consider what kind of risks are involved and how long repairs might take. Then carefully consider the professionals you bring in on these kinds of projects. To learn more about home renovations and Fresno area real estate, check out more from our blog!