If you’re reading up on house-flipping, you’ve probably seen several shows on the topic. They make it look easy to find a cheap property, buy it, renovate, and sell for a profit. However, if it were that simple, we’d all be real estate billionaires.
If this is a hobby or career you’d like to pursue, it’s essential to educate yourself first. Naturally, we’d like to help, so here are six tips to get you started.
Research the Market
Any professional flipper will tell you how important it is to research the local real estate market. What are people looking for in a home? Where do they want to live? These are all questions you need to ask. Remember, you want to sell this home quickly, so make sure people want to buy it first.
You need to know the financial ins-and-outs before applying for a loan or making someone a purchase offer. It’s the only way you can make an informed decision. There’s also the matter of taxes when borrowing money.
Many house flippers don’t consider GST and how it applies to their transactions. For example, according to the Good Service Tax website, GST can offer a rebate for homeowners who need to renovate. However, some flippers can take advantage of this, as well.
When you’re ready to sell the house you’ve fixed up, you’ll likely be required to charge the buyer tax as well. While there might be a few exceptions, it’s essential to check if you qualify for one before starting the sales process.
The 70% Rule
The goal with house-flipping is to make a profit, and the 70%-rule is the perfect measuring stick.
Let’s say a home’s ARV is $200,000, and you need $30,000 for repairs. According to the 70% rule, you shouldn’t pay more than $110,000 for the property:
$200,000 (ARV) x 0.70 = $140,000 – $30,000 (repairs) = $110,000
Being a good negotiator is critical. You’ll need to haggle with real estate agents, contractors, and other workers. Keep in mind, the less money you must invest in a house, the more profit you can earn during the flip.
Research Listings and Foreclosures
Look for foreclosure listings, as these will often be desperate sales. Websites, auctioneers, and local newspapers are excellent places to start looking for your next project.
Relist and Sell
Realtors have access to buyers and Multiple Listing Services (MLS) databases. They’re also familiar with current market variations and have the skills and networks to quickly get you the best price.
Is house flipping a risky business? Absolutely! However, if you take the time to do your research and make smart financial calls, you can make quite a bit of money. Learn how to negotiate and understand how to calculate price and profit.
Keep in mind that you can also lose everything if you make a terrible investment. Before you get into this field, ensure it’s right for you.