Low interest rates and high-demand for low-cost homes have led to the soaring popularity of house flipping, or the buying and reselling of property.
According to a report by real estate research firm RealtyTrac, house flipping accounted for 6.6 percent, or over 43,700 of single-family home and condominium sales in the first quarter of 2016. This figure represents a 20 percent increase over the previous quarter, and the highest percentage since 2006—well before the housing crisis that perpetuated the great recession.
If you’re reading this, you’re probably thinking of jumping in the house flipping bandwagon, which could very well be a lucrative venture. But it’s not for everyone, and many house flippers have walked away disappointed because they failed to turn an expected profit.
That being said, below are 5 factors to consider before you decide to flip a house:
Expect to Spend More Money
When you see reports of 5-digit profits by house flippers, it’s worth noting you’re looking at gross profits, which doesn’t include the costs of renovating the property. And rehabbing a home can easily add another 20 to 30 percent of what you paid for the home, as is.
Remember to tame your expectations. House flipping is about turning a modest profit, not quadrupling your investment.
You’re Competing with Homeowners
Low interest rates mean that more American homeowners have refinancing cash they can use to remodel their own homes. Essentially, you’re competing with a market that can pay their own renovations instead of buying a rehabilitated house. And remember, you also have to compete with other house flippers.
Buy Low, Sell High
Don’t aim to sell high—aim to buy low.
Veteran house flippers know that money is made on the initial investment instead of the back end of the deal. When you look at a house, you should already have a good number in mind for its selling price after renovations, building permits, and contingencies. In turn, this ensures you have a minimum profit from your deal.
Be Prepared to Bring in Help
Successful home flipping is a team effort. You will need contractors, accountants, lawyers, real estate agents, and home inspectors.
A home inspector will prove invaluable in assessing the state of a house before beginning any renovations. This ensures you know what improvements to make, instead of discovering costly problems in the middle of a rehab job. A reliable home inspector will point out what parts of the home need to be fixed, which you can work into your selling price or cut into your profits.
And of course, you need realtors who can market the home for you.
Location, Location, Location
If you could take one house and move it between different cities, you can bet your sale price will fluctuate wildly. For example, if you sold the same exact houses in Pittsburgh and New York, you would get a better return on investment in Pittsburgh.
The key takeaway? Be sure to consider the location of your property when setting expectations for ROI.
If you invested in a house but don’t have time to apply renovations, you can sell it as is and still turn a modest profit. Sell your property to an investor like Blue Hen Homebuyers! We buy all kinds of houses, regardless of their age or condition. Call our offices today at 910-802-2222 to learn more about how our services can help you.