House flipping has continued to thrive in recent years, and the potential profits have attracted many investors to the marketplace. While the potential profits are a big draw, you must do your homework before beginning a project in order to ensure the highest probability of success. A few of the tips listed below should help when considering a new real estate investment.
Choosing the right house to purchase and flip is the most important decision to make when beginning to plan your investment. According to an article from realtor.com, investors should look for homes that have “good bones” meaning that they are structurally sound and have a lot of potential to be fixed and resold as good quality homes to make a sound profit for the real estate investor. Having a good base to build around will help to make the flip easier.
Once you’ve found a good investment property, you’ll need to determine how much your’re willing to pay for it. Running comparables for other similar properties that are in the same neighborhood can provide a good sense of what the home would be worth once repairs have been made. The After Repair Value or ARV is another great estimate for what the home will be worth after the rehab is been completed. A good rule of thumb is to keep your purchase price and rehab budget below 70% of the ARV.
Finally, as a savvy investor, you should network and find out who the best local contractors are and who may be the best to tackle your project. You should ask for estimates on renovation costs from contractors and get references from previous clients who can attest to the quality of the contractor’s work. Hiring a good quality contractor goes a long way in helping the entire flipping process go as smoothly as possible. You should also budget conservatively and plan for any unseen extra costs that may occur during the flip to give flexibility should these problems arise.
Flipping houses can be very exciting and, when done right, very profitable. By picking the right property, estimating expenses correctly, finding the right contractor to do the work, and having a sound estimate of the resale value of the property once the rehab is completed, you can put yourself on the path to great investing success.