flip the house

5 things to know before flipping a house

flip the house

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This article is part of Bob Vila’s 2022 Home Flip Guide, a month-long series dedicated to showing you the best places to flip a home, the key steps in choosing a property, the upgrades and repairs you must make, and surprising ways to cut costs to get the most out of your home flipping sale . Every week, we bring you fresh insights, combining Bob’s time-tested advice, our vetted shopping guide, and insider tracking from the right professionals to get you on your way.

Turning a house is less like sailing on the high seas, as summed up in a TV home makeover show. You need to know where you’re going and how to get there, but along the way, you also need to understand many different factors to help you get there. If you misjudge any of these, your project could fall over.

Before starting your flipping house project, here are some important things to keep in mind.

RELATED: Top 10 Tips for Flippers to Increase Home Value

1. Plan your exit strategy from the start.

From the moment you first enter a potential flip lane, start planning your exit strategy. If the house looks shabby from the outside, it probably isn’t great on the inside.

Potential buyers’ pool of funds will be limited if the driveway is on a steep grade or back on the main road. In rural properties, checking to see if the home is serviced by public water and sewers, rather than well water and septic tanks, can turn off many buyers.

Is the roof worn and missing shingles? If there are cracks on the outside of your home, be prepared for foundation problems and a big bill. From the moment you first see it, you can tell a lot about the house. In fact, like entering a crime scene, your first instinct is sometimes the best, so be extra vigilant.

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2. Calculate your carrying costs correctly.

In a rush to make money, many first-time fins use only the purchase price versus the sale price. However, incorrectly calculating your holding costs can kill your profits. For example, if you borrow in hard currency, you either make monthly payments or pay off the interest at the end of the loan. Calculate the lender’s points, origination fees, and document preparation fees. These fees allow lenders to mark additional profits on each transaction, while the fees are covered by flippers. You should also consider utilities, builder risk insurance, and taxes.

If the seller owned the property for a long time before you bought it, the city could suddenly decide to raise your taxes mid-flip based on the price you paid. When this happens, not only will it hurt your holding costs, but it will also affect the sale price.

RELATED: Don’t Quit Your Day Job: 10 Tips for Wannabe House Flippers

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3. Predict the market conditions when the flip home is built.

Shell markings change like the wind, as many flippers now experience. Before flipping your home, get a sense of where the market is most likely to be 6 to 12 months after the flip is complete.

If you can see storm clouds brewing, don’t do expensive flips that take a long time. Instead, focus on cosmetic redoes that you can do quickly. The last thing a flipper wants is an albatross wrapped around its neck.

4. How will you pay your contractor?

Flippers live and die by their contractors. A good contractor is worth paying dearly for future work. Cheaper contractors may offer a reasonable price for the project, but they may have multiple jobs at the same time. Ultimately, over time, they can drag on your work and cost you additional holding costs.

Before making your choice, ask how your contractor would like to be paid. This can be a red flag if they want a lot of upfront capital. Some contractors took the money and ran away. You want to hire a financially stable contractor, not a contractor who robs Peter to pay Paul and jumps from job to job. It is customary to give the contractor a small sum of money to start the work and then set a schedule based on some completion benchmark. A reputable contractor should be able to “float” the work themselves at each stage and then bill you accordingly.

Some fins prefer to take the materials and ship them to the job site, so they only have to pay the contractor for their labor. Other contractors prefer to handle everything. There is no right or wrong way. It is important that everything is explained and understood in writing before starting the project.

RELATED: Here’s How Many House Flippers Are Actually Made

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5. What kind of decoration is suitable for the community?

Your community determines the type of renovations you will have. If a nearby comparison (comparable property) doesn’t support the charge in the appraisal, then your finish doesn’t make sense. You just throw money out the window.

Likewise, if you’re in a high-priced neighborhood, you’ll need to keep up with your competitors’ design standards. Going cheap can hurt you when looking for a buyer willing to spend.

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