“Flip This House” is a phrase that many of us are familiar with today since there are dozens of tv shows glamorizing the house flipping business and making it look easy. I am here to show you that flipping houses is not easy but if you treat it like a true business and learn everything about your real estate market it can be very lucrative.

The Bottom Line Know your market, your budget and your skills and flipping will go so much easier.

Buying houses for the short term, remodeling them and then selling them for a much higher price is known as “flipping”. Lately it seems there are slew of TV shows that show how it’s done. But flipping a house in a 30-minute TV show leaves out the hard parts and barely mentions the big time problems you might encounter.

In the housing markets we have lived in flipping houses has not always been feasible. We have purchased houses at foreclosure auctions, remodeled them while we lived in the property and then resold them for a profit. Because our type of flipping took a lot longer than a few weeks, our profit margins were not that high. But if it’s done right, there’s still a bit of money to be made.

Before flipping (or attempting to flip) any property, there are things you need to keep in mind. For the most part they are common sense, but even that tends to fall by the wayside. Especially when you see big dollar signs at the end of the road.

Here are some of the things we had to learn the hard way.

Know your market

Buying a house is usually long-term project. You will look at a ton of properties before you find the right one for you. But when you are flipping, you often need to make quick buying decisions. Because of that you need to know your market.

It’s great if you can pick up a property for next to nothing, but if you invest in the renovation/remodeling project and expect to sell it for a big profit, you need to take a good look at the neighborhood.

Browse through Real Estate Agent’s websites and find out what similar homes in that neighborhood are sold for. Drive by some of the properties and see what condition they are in. It’s unrealistic to expect a $80.000 profit in a neighborhood that is poor. Your property will be on the market forever and each month that you have to carry the mortgage and pay property taxes, will cut in your profit.

Finding the “right” property

Once you have narrowed your choice to certain neighborhoods, you need to take a close look at the available properties. If you’ve never done any remodeling work you might not want to start with a home that needs to be completely gutted. Find a property that is suited to your skills. Unless you can afford to shell out big bucks for contractors and sub-contractors, and are able to sustain big time budget overruns, find something that works for you. Use your first property to learn from your mistakes. Your profit might not be so great the first time around, but you now have the experience to enlarge your profit with another try at flipping.

We’ve found a lot of the properties we flipped at foreclosure auctions. Each town has them, they are posted in the local paper. There are a few things you need to watch out for when buying a foreclosed property and I will address those in detail in another essay. The main things to watch out for are:

Liens against the property - The local registrar of deeds can help you with finding out if there are big time liens against the house you are attempting to buy. If you pay a low price for the property, but have to shell out big bucks to pay off those liens, you might be looking at the wrong house.

Condition of the Property - Most states and townships limit the way you can view a foreclosed property. For instance you might not be able to view the inside of the home before you buy it. There are ways around that and I will address those in the other essay, but you need to pay attention to theexterior of the house. It the yard is filled with junkcars and trash, the inside might not look much better. Common sense really works here.

Setting a realistic budget for buying - For the most part you can pick up a foreclosed properties well below market value. But keep in mind that you have to add certain fees to your buying price and make sure that you still come out ahead when buying the property.
If you have to evict the current owners, buying the property can become quite a bit more expensive.

If you are not sure about how to buy a foreclosed property, you might want to attend a few auctions before actually bidding yourself. This makes the process much easier to understand.

If you don’t want to get into foreclosed properties, you will have to look on the open market. And that’s a whole new set of problems.

Setting a budget for buying

Now that you know your market you need to set a budget for buying a house. Just like any other real estate purchase a bit of haggling might go a long way. While the $5000 you save by offering that much less on the purchase price might not seem that much, you need to keep in mind that this amount of money might buy you a new kitchen, pay for the paint or finance upgrades you might not have thought of.

Make a realistic offer, submit it and don’t worry if you don’t get the house. There are others. You are not looking for your dreamhouse here, you are looking for an investment property.

Buying a house on the open market has one advantage - you can view it before you buy. Do several walk-throughs with your real estate agent at varying times of the day. Note any obvious problems, such as water damage, loose foundation bricks, cracks in the foundation and on the inside, etc. Get together with a home inspector and have him do a walk-through with you.

No matter what, hire your own home inspector

A good home inspector is worth every penny you pay him. Make a thorough home inspection part of your buying conditions. If the home owner or real estate agent won’t go for that, chances are that there are some big time problems and you won’t want the property anyway.

If a homeowner offers to pay for a home inspection or “just had one done”, don’t use that information. In that case the inspector works for the home owner and might not mention some of the little problems that could cost you big bucks. Hire your own. If your inspector just duplicates the information you are in great shape. But you might uncover problems that were not mentioned in the home owner’s report.

We recently looked at a property and the home owner had an inspection done a month before. Our inspector found severe termite damage and fresh termite tracks. This was not mentioned in the home owner’s report, simply because their inspector had never checked for it.

You also don’t have the time to accept the home owner’s report, then find big time problems and now you have to take everyone to court. You are flipping this property, you don’t have time for a drawn out court battle!

Setting a budget for flipping

Once you have found your property you need to come up with a realistic budget for the flipping process. After three or four walk-throughs you should be able to determine what you want to do with the property.

We usually make a list with several categories:

Absolutely must be done - this includes all the things that must be done. From replacing tubs and sinks to upgrading the electricity. Putting in a septic tank that meets code requirements is another one (an expensive one). Painting, replacing carpet, doors and windows are also high on our list. Does the property need a second bathroom? Do we need to knock out walls?

Costs for this add up quickly, so do your homework. Go to your local home improvement center (better yet go to several)and find out the cost for these items. How much is a standard tub vs. a jacuzzi? How much does an average size window cost? What’s the price difference between plain wood and aluminum clad windows?

Is there a place near you that sells construction materials at lower prices? Near you, because if you have to drive 200 miles to get your doors and windows, you might not come out ahead over your local place.

Write down all the prices, so you have a list when it comes to making your budget.

Things that should be done - this category lists all the things that should be done to get a reasonable selling price. This can range from Granite countertops in the kitchen to a double vanity in the bathroom. By the way Travertine is much cheaper than granite and looks just as good.

Things to leave alone - If you don’t have to knock out a wall - DON’T. If the bathroom fixtures are old but in great shape, then leave them alone. You are not doing this for yourself, you want to move in, flip and move out. If the plaster ceilings are in good shape, but just a bit dingy, make do with a skim coat, dont’ knock them down and re-do. Is there insulation in the walls? It’s blown-in? Don’t rip out all the walls and replace it with fiberglass insulation, hire someone to add to the blown-in insulation.

The biggest rule here: IF YOU SPEND MONEY ON WORK THAT’S NOT REALLY NEEDED YOU WILL LOWER YOUR PROFIT MARGIN.

You’ve made your list, now it’s time to draw up the budget. Add up the cost for the items you have to have. Next figure out which of the work you can do yourself and which of the work you have to hire out. You did check out the hourly rates of plumbers and electricians in the area, didn’t you?

There are jobs that cannot be done by an amateur. Certain electric and plumbing work needs to be done by a licensed professional. Figure that into your budget.

Don’t forget to add the fees for permits and licenses.

Once you come up with a realistic budget ADD 20 PERCENT. You will have cost overrun, that’s almost a given. And those 20% will come in handy later on in the process.

After making your budget you will repeat to yourself these words “I will stick to my budget, I will stick to my budget…..”. Do this until you say them in your sleep. Post your budget everywhere. If you know you can’t stick to it, find someone who can.

I am the budget manager for our properties and I have no problem with cutting the money of when certain members of my family get carried away. Every penny spend over the budget will eat into our profit.

Budgeting your time

When it comes to budgeting your time, you need to be very realistic. If you know that you can only do the work on weekends, then don’t set yourself a completely unrealistic time budget. If you know you will have to do most of the work by yourself, add a few weeks to your budget. Most tasks take a lot longer, especially if you’ve only done them once or twice before.

Be realistic about your skills. If you don’t know how to do something, hire someone who does. Find out how much time he needs to get the job done and figure in a 10% overrun. Things go wrong, contractors don’t show up, materials get delivered late. Make sure you keep that in mind.

If you hire family and friends to help you, ask them to be honest. For our first property we hired family members. Big mistake. Some of them didn’t show up at all on the dates we needed them, others cut out halfway through the project and we ended up doing most of the work ourselves. It took a lot longer than we had expected.

Also be honest about the skills of your family members or friends. If they never did any construction work don’t ask them to lay your brand new floor tile. Give them a sledgehammer and have them demolish a wall. At least they can’t break anything that way.

Here are the top 10 tips for flipping a house successfully starting from tip 10 and down ;

Absentee management doesn’t work. You must be on the job site to monitor the work being done.

Know what features and amenities your potential buyers are looking for.

Don’t be afraid to make low offers. No today doesn’t mean no tomorrow.

Talk to a real estate agent about what you are planning to do to the property. Determine what the property will sell for after your repairs are completed.

Time is money. Use your time and money wisely.

Put your budget down on paper. Compare your actual costs to your budgeted costs so you can see where the differences occur.

Understand all the costs involved in the transaction. These include interest, repairs, closing costs, holding costs and sales commission.

Have extra money in reserve. If you plan to use every penny that you have, you will be in trouble.

	Have your funding in place before you look for a deal.
	Flipping houses is a  business. You have to make money to stay in business.

Now the house is bought, the budgets are made and you are ready to flip

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1. Money is made at the buy, not the sell of your flip. When flipping a house your money is made at the purchase not at the sell of the house. So, many times people buy a house with the intensions of making a huge profit only to find out that they could not make any money after all the renovations because the purchased price of the house was to high. When you purchase your property you need to be sure that you buy the house with enough money to make renovations, have carrying cost, and add about 5% for extra expenses, and see what type of profit margin you will be left with.

Example: If you buy a house for $120,000 and the houses in the area sell for $155,000, and the house needs $15,000 to fix it up. You are now at $135,000. Carrying cost for six months on the home is $6,000. Now, at $141,000, and the fees and closing cost my extra 5% $6,000. Now, cost is at $147,000, and that is if everything goes as planned. Profit is under 10,000 dollars. The mistake was made at the purchase at the home, not the sell.

2. Get an inspection on the home - Get a complete inspection done on your property. By, spending a few hundred dollars on this expense you can save thousands in problems that you cannot see. Foundation, Pest, Wood Rot, Etc… By, getting a full inspection you can rest assured that you know every thing that is wrong with the property before it’s too late. In the contact for the house you need to make sure that you have 7 days to have a inspection preformed, and if the inspection finds problems that are going to cost more money that you are willing to spend you can get out of the contract with no penalties.

3. Don’t do the work yourself: - Get a contractor or several sub-contractors and have the work done quickly. You need to have you house flipped ASAP, so that you can get it on the market and get it sold. When I started flipping my brother and me did a house together, and we did all the construction. I had a construction background and figured it would save thousands, but it took us over 4 months to get the work done that a contractor could have had the work done in a month. But, we trying to save money on our flip did all the work on our time off and after work, and it just took to long. On our 2?nd flip we used contractors for almost everything and had the house completely flipped with a new roof, new air conditioning, new hardwood, and much more in only 3 weeks. We did not have to spend all our time working on the property and were able to spend that time looking for the next deal. This is how you get rich in real estate.

4. Place the property 1 to 2 percent below market value: If you are wanting to flip real estate and make money the object is to buy and sell the property as quickly as possible, so that you can move on to the next house. If you purchase a house and try to sell it at top dollar to make and extra couple of thousand dollars on your flip, and end up holding it for 6 months you are loosing money. Get the house on the market at a price that is going to blow the competition away, and you will sell it no matter what the market conditions. On our second house the market for selling house went down do to the housing market as a whole, and the tightening of the loans across America. We were told that you could not sell a property in this market, but we went ahead anyway and flipped our house. After 3 weeks on the market we had 3 people wanting to buy the house. Why, because we offered it at such a great deal that people wanted to jump on it. That is what you have to do especially if the market is slow.

5. Use a real estate agent - Do not try to sell you house on your own. Harness the power of a real estate agent and the power of the MLS system. When you do a FSBO you are depending on people driving by your house and seeing you sign, with a real estate agent you have some one actively marketing you house to get it sold. Once again this will free up more time for you to look for more great deals. If you want to help the process I have found that craigslist and listing you house in google adwords help to, but I use these tools with the help of a agent to make sure I have all my bases covered.

I hope this article has been helpful with the basics needs of flipping a house. If you will study and learn you will make money. But, do your homework before you purchase a house, and make sure that you can pull a profit on your deal. Then, make it happen!

By: Chad Wiley

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