Flipping houses--buying a fixer upper and then re-selling it--was once a little-known secret in the real estate world. Television shows may have popularized the idea during the last housing boom-crash cycle, but it has been going on for decades, if not longer. While not for the faint of heart, fixing and flipping houses is fairly simple if you follow a few rules.
1. Use a Realtor: Many people believe that Realtors are overpaid, yet they earn every penny when you fix and flip. In fact, when you are purchasing a home, all the agent's fees are paid by the seller. Nothing comes out of your pocket. Money aside, using a Realtor just makes sense. They know what sells and an experienced Realtor can steer you in the right direction.
2. Location, Location, Location: This simple phrase could not be more true. Thought to be first uttered by a British real estate tycoon, it simply means that where you buy is the most important aspect of your decision. When it comes to flipping homes, you can buy the ugliest house in the nicest neighborhood and make a tidy profit after repairs. It also means that you can't force a profit in a less than desirable area. Choose wisely and see rule #1 --use a Realtor.
3. Don't Bite Off More Than You Can Chew: This rule is more of a personal decision. Decide before you start shopping what you are willing to fix, and what you are not. Cosmetic issues and new roofs are easy issues. Foundation and mold remediation problems are not always so clear cut. They not only cut into your bottom line, but can dramatically affect your cash flow. In fact, if you decide to re-sell, buyers may remember the issues and stay away from the house solely based on its previous problems.
4. Neutralize: Another buzzword in the real estate world is neutralize. While it may sound fancy, it just means that making a home a neutral color palette helps it appeal to a wider base of buyers. Take down that hideous floral wallpaper and re-paint that atrocious lime green wall to make the house instantly look better. While neutralizing often refers to correcting what the previous owner selected, mistakes can be made by rookie flippers as well. For example, do not pick the blue carpet because it is cheaper. Most buyers will not like it.
5. What Sells: Knowing what sells is often very neighborhood specific, and another time you should use that Realtor for advice. Houses in family-friendly areas sell faster when they have four bedrooms. A two bedroom house in the same area is going to be a tough sell. Hip areas that millennials are drawn to may do better when an extra bedroom is staged as a home office. Knowing what sells in your area is key to a quick profit.
6. Have an Exit Plan: Know what you plan on doing with a home before you even buy the home. If you want to re-sell fast, you should know the average days on market and potential selling price. If you plan on holding your property, have a property management company lined up in advance. In fact, you can even discuss with your contact there what their clients look for in a rental in a specific area.
7. The Next One: Don't wait until you are completely finished with your first project before looking for the next. In fact, you should always be on the lookout for great deals. The people that are successful at fixing and flipping homes always have the next one lined up well in advance.
Fixing and flipping is always possible, regardless of market conditions. If you use a good Realtor, a great contractor, and a successful property management company, you can build a powerful team in your quest for building wealth through real estate.