Real Estate Investing: Flipping Properties for a Profit. With the financial markets falling out from below us and prices rising to all time highs, where can we turn to secure our financial futures? While many people struggle with the burden of how to keep up from month to month, a handful of smart investors have learned how to make sure that they continue to be able to pay the bills while the rest of the world falls apart. They have turned to the real estate market. The largest profit maker for the smart investor has become flipping homes.
The process of flipping homes is actually quite simple. The following is a brief overview of the basic steps to flipping a home:
STEP 1: FINDING THE DEAL
The most critical step to making money in real estate is finding the deals. If the home doesn’t already have a profitable deal built into it, avoid it and move on to the next property! While upgrades can add value to a home, it can not make up for paying too much to begin with. When you go to look for homes to make a flip investment out of, spend time only on homes that are listed at least 20% below its “as-is” appraised value. If you see a home that is in a neighborhood of similar homes is listed at $95,000 and the other comparable homes are listed at $99,000, this home is not worth the time.
You can safely expect that the home is in perfect condition and that even with cosmetic and luxury upgrades, it will not sell for more enough of a markup to make a profit. On the other hand, if in that same neighborhood, there is a home listed at $74,900 you have something worth looking into. Now that you have found your deal, lets move on to the next step.
STEP 2: DEMOLITION
When taking on a flip project, it is expected that a major amount of demolition and reconstruction will be necessary. If you are going to get into this business, do not do it half way. If some part of the house is in need of a repair of replacement, tear it out and start from the base of it to avoid putting a gold plate over a rotted wall!
It is easier, faster, and less expensive to do the repairs the right way from the beginning than it is to go back at the closing table when the home inspector rejects the deal over something that could have been replaced four months ago. To improve the curb appeal of the property, also consider the landscape in the front and backyard when working the demolition.
STEP 3: REPLACE FIXTURES AND APPLIANCES
Replacing the fixture and appliances in the home will add exponential value to the house. Even if the home currently has working appliances that could “do for now,” rip them out and replace them with brand new matching appliance packages. I nearly all cases, the upgrading of brand new appliances add in value more than double the cost of those same items. It is also necessary to be sure that a washer and dryer is included with the house. A completely updated house is not complete without a complete appliance package.
*To see the remaining steps to this process, see PART 2 of this article!