With all of the hype on television programs, the average person is led to believe that house flipping is an easy way to “get rich quick!”One program, based in California, features movie star- like realtors that pay cash for houses at auctions, and predictably make $40,000 to $70,000 per flip.Other infomercials encourage people to buy their “system” for purchasing foreclosures or homes from the government at below value prices.I have personally flipped six houses and have made money on some and barely broken even on others.Fortunately, I haven’t lost money.Flipping is probably not something to try, if you have to hire all of the work done.Here are six lessons I have learned that you should consider before you purchase your first flip:
- Location, location, location.There is nothing more important in real estate then location.Remember, a near-perfect house in a bad location may sell, but it will only bring an amount that is reflective of that neighborhood.It is always better to find a flip house where people want to live.
- Good bones.The most expensive thing in any home to fix, in case it’s broken, is the foundation.Carefully examine the foundation and the structure of the home.If you see lots of cracks in basement walls, the wallboard, plaster, or uneven floors, it’s time to call a basement expert or a structural engineer.
- Exterior. The next critical part of your flip is the exterior “envelop,” consisting of siding, roofing and the windows.If you need to replace any of them, your profit will be markedly smaller.If you need to replace two of the three, walk away.Now let’s turn our attention to the inside:
- Mechanical. Hidden behind the walls and in the basement or crawl space are the plumbing, the electrical and the Heat/AC systems.If you are considering the purchase of a house over 20 to 30 years, you may be looking a partial of full replacement of any of these systems.Here are things to avoid, if you can:Knob and tube, ungrounded or aluminum wiring systems, asbestos wrapped heating pipes, galvanized water pipes, rusty, cast iron sewer pipes, older furnaces or air conditioners, and small, outdated electrical panels.
- Insulation. If you purchase an older, under-insulated home you will want to assure prospective buyers that you have installed adequate insulation in the attic and walls.If you don’t intend to open up the walls, adding high efficiency insulation can be very difficult for the amateur. Contact a local insulation expert for advice on the options available for your particular house.
- Kitchen and bathrooms. It is a well-known fact that kitchens and bathrooms sell houses. The opposite is also especially true!No savvy buyer will pay full market price for a house needing thousands of dollars of upgrades in these areas.Take a long, hard look at cabinets, countertops, backsplash and appliances.Hundreds of products are available at big-box stores to improve deficiencies in these areas.Successful flippers understand that finding attractive, moderately-priced materials is the secret.The selection of laminates that are now available for counter tops and wood flooring is quite impressive.Attractive ceramic tile is more affordable than natural stone.Many flippers paint or reface outdated cabinets.Finally, new, bright LED light fixtures are becoming more affordable.
- Floors. Limit your use of carpet.Most buyers prefer hard surfaces these days.Carpet should probably be limited to bedrooms on the main levels and rec rooms in the basement.Install ceramic tile and wood (or laminate) flooring whenever possible.Occasionally, uneven floors make this more difficult and you have to rely on carpet.
- Walls. Remove wall paper and repaint the walls of your flip.This is something that most people can do that leads to a clean, updated appearance. Wall paper is a “huge” turnoff to most buyers.
Consider all of these things, and carefully draw up a budget of the needed fixes.Add in a 5% to 10% contingency for the unexpected.Also, don’t forget closing costs and the costs associated with selling your flip.If all of these numbers “add up” talk to your REALTOR for independent confirmation before you make an offer.Most REALTORS have sold flips for their sellers and understand the pitfalls.