I grew up with a mother who saw old run down homes out in the Virginia countryside and dreamed of bringing them back to life. HGTV is filled with shows about flippers turning rundown houses into beautiful modern homes. Of course these shows are fun to watch but before you jump into the deep end of that fantasy pool, take a deep breath and look at your skill set and resources.
If you’re considering flipping a property, here are some tips to help you determine whether or not it’s right for you.
Will This Project Be Profitable?
You won’t be starting this project unless it is going to be profitable! Before you even make an offer on that rundown shell of a house, you have to evaluate the cost of your renovation project against the profit you stand to make from the sale. Of course if this were easy to do we would all be millionaires.
Here is a very simplified way to estimate your costs:
Acquisition cost + taxes, insurance, closing costs + holding costs (mortgage) + carrying costs (holding the property before sale) + construction budget + 15% contingency = X Next you compare X to recent sales in the area. That is where a good realtor will come in handy. While you might have bought the rundown shell that is going to turn into riches for you and your family from a wholesaler, you should definitely talk to a Realtor who is familiar with recent sales in the area.
When you’re comparing the number X above to comparable sales in the area you need to make sure that you’re not getting excessively optimistic about those comps. Don’t use any sales that are more than a few blocks away and no sale should be older than three months to use in setting your price. However, it is a good idea to look at what the market in that area did six months, a year and two years ago. Housing markets can change suddenly so you want to be sensitive to which way the market is trending.
Are You Suited to Be a Flipper
Here are some things to ask yourself if you’re considering a flipping project:
- Do you roll with “issues” or is it upsetting to you when things go sideways. A flipped project will be like riding a roller coaster.
- Where is the property located? It should be close enough to be easy to check on. Contractors need to be monitored because they make decisions that you don’t agree with like putting a bulkhead in the middle of the kitchen instead of where you expected it.
- Is it in an area with high sales velocity? How many other properties in the area have sold in the last few months? What is the likelihood that you will have to carry the property for two months or longer.
- Are there good schools or other neighborhood features that could boost the sale price? Is the neighborhood trending upward? Where is the nearest Starbucks or Target.
- What is the profit potential? After calculating the formula above, does the estimated profit seem worth taking on a project of this scale?
- What do you know about construction or design? Do you have a good list of contractors to help bring the run down shell to HGTV quality. After you are committed to buying the property is NOT the time to start looking for contractors.
It is so important it is to work with knowledgeable professionals who will save you time and money by doing the job well the first time. If you are interested in flipping a home, just give the Lise Howe Group a call at 240-401-5577 and lets talk about how to find a home, fix it and flip it!