Hints and Tips for Flipping a Fixer-Upper

‘Flipping’ is a process where someone buys a home, usually one that’s cheaper because it needs significant renovation, and sells it on a short while later for a profit. It sounds straightforward, but it isn’t without risk. Make a good investment, and you’ll be laughing all the way to the bank, but make a bad one, and you could lose everything.

If you’re looking to get into house flipping, make sure to do your research about how much you can expect to spend, what you’ll get for your money, and how much you might ‘flip’ the property for. You don’t want to end up spending a ton of time and money on buying and renovating a place, only to find that no one wants to buy it. This leaves you liable for the mortgage, insurance, taxes, and bills, which can make a serious dent in the profits you’ll make when the house eventually sells.

If you still want to have a go at house flipping, read on for some hints, tips, and ‘must-dos’ to sell a fixer-upper house for profit on SoCal Homebuyers.

What You Need

Unless you have a huge chunk of ready cash and can comfortably buy your flipper house outright, you’ll need some sort of a loan to help pay for it. The first thing you’ll need to know is your credit rating, as this will determine how much a bank is likely to lend you. It’s especially important to start with good credit as house flipping is considered a ‘high-risk’ loan, so the criteria are likely to be stricter.

Checking your credit rating is entirely free, and there are three national credit reporting agencies where you can find that information. If your credit isn’t good enough to secure a big enough loan, you can build it up by making sure to pay bills on time and pay off debt as quickly as possible.

If you do manage to secure a loan, you’ll still need plenty of your own cash for a down payment. The higher your down payment, the lower the risk that you’ll end up struggling with high interest rates down the line (interest for ‘flip’ loans can be as much as 10% higher than traditional home loans). Most lenders prefer a down payment of around 25%, and it’s these traditional lenders you want to go with. They’re probably going to give you the best rate.

If you don’t currently have enough in savings to make a down payment, there are tons of ways you can put one together. Either redirect part of your salary into a high-interest savings account, or if your salary is all accounted for, look into ways to make extra cash on the side. If you’re smart and committed to saving, you’ll be surprised how quickly it comes together.

You’ll also need a network of contractors and construction experts you can use to turn the house around, unless you’re planning to do it yourself. If you are, please be careful. If you don’t have the expertise to do something right, hire someone who does. This can take a while, so it’s a good idea to start the process before you’ve even purchased a property. Once you have a house, you’re on the clock, and the shorter the turnaround, the better.

What Your House Needs

Once you have a good handle on what you can afford and where the money is coming from, it’s time to turn your attention to the house itself. Not all investments are good, and not all houses are worth it. Don’t be seduced by low prices alone. Several other criteria must be taken into account.

The first thing to consider is where the home is located. Houses in less desirable neighborhoods tend to be cheaper, but they’re also a lot harder to sell. You need to either find a ‘fixer upper’ house in a popular location, or do your research and identify which neighborhoods in the area are up-and-coming. You want to get into these areas while you can still get a good deal.

How do you differentiate a good area from a bad one? Look for things such as high employment rate, increased real estate prices, low crime rate, good school districts, and so on. Avoid areas that have high numbers of homes for sale, as this can be a strong indicator that people are leaving for some reason.

The other thing you need to think about in terms of location is how close the property is to where you actually live. If you’re going to be renovating this home, you want to think about how much time you’ll need to spend there and how you might get there. No one wants to spend hours every day commuting, or spending a fortune on gas or transport.

When choosing a home, you also need to make sure it’s in a reasonably good condition. Even if it’s a renovation project, you need to know what you’re getting yourself into before you start. Nasty surprises such as damp, subsidence, or bad foundations can be catastrophically costly. If you’re not sure, ask experts to come to take a look for you.

Most people who ‘flip’ homes try to do it as quickly as possible to maximize profit, so avoid huge projects such as rewiring or structural changes if you can, especially if you’re just starting. Smaller updates such as kitchen renovations and landscaping can have a huge impact on a home’s value without needing a huge investment.

Your home should also be valued below its actual market value. This is important as it will help you make more profit. Think about buying the worst house in a great area and not vice versa. That way, you can only go up. Improve it just enough to make a solid profit and move on to the next project. Never over-invest, as you run the risk of not breaking even when you resell.