The following is a guest post by Valerie Clark from Your Payoff. Many people think real estate is a surefire way to get rich, and then are surprised when their home turns into a money pit. Valerie shares how to make money flipping houses. This is worthy read of anyone browsing fixer-uppers, whether to resell or fashion into their dream home!
As I scrubbed a subfloor in a small, stuffy bedroom that a dog had used exclusively as a toilet, I thought to myself, “Gee, isn’t house flipping glamorous?
Little did I know that it was the beginning of my journey toward a mortgage-free life!
I didn’t initially set out to make money flipping houses. It all started with a job loss that forced my husband and me to move to a new city in 2011. A year later, we bought the most affordable house we could find. It was a great house priced way under market value. We gave it a thorough cleaning (especially that upstairs bedroom), painted, and installed new flooring. We also put in a new gas stove, a furnace/air conditioner, and a water heater. Over the next few years, we attacked our mortgage aggressively. Soon enough, the house was worth nearly three times as much as we owed on it.
In March 2017, we took out a home equity loan to finance the purchase of another fixer-upper. We then sold our first house for a price that allowed us to pay off both our original mortgage and the home equity line. We were left with another fixer-upper that we owned outright, and a lengthy to-do list that’s still going strong today. Huzzah!
Flipping houses has been fun and profitable for me, but it’s not for everyone. Wondering if you can make money flipping houses? Here are my top 10 tips for your flips!
Know your real estate market
Depending on the housing costs in your community, it simply might not make good financial sense for you to buy a house, whether you want to flip it or not.
Truth is, you can’t make money flipping houses in every real estate market. Maybe home ownership is cost-prohibitive in your city, or maybe it’s significantly cheaper to buy than to rent where you live. I have experience on both ends of the spectrum. My husband and I lived in a burgeoning ski resort community out west and, long story short, we probably should have stuck to renting. On the other hand, in our current Midwestern city, the lack of housing stock has driven rental prices up to exorbitant rates. So in this community, it definitely makes more sense to buy than rent. You can check websites like city-data.com to find statistics that will help you make your decision.
See the potential (even when you have to look really hard)
We all know that there is no substitute for a good first impression. But if you want to be a house flipper, you have to be able to look past the cosmetic stuff to see the bones of the house. Don’t be distracted by clutter, green shag carpeting, or the wood paneling in every single room. Look at the foundation, the layout, and the square footage. You might find a diamond in the rough!
Get a realtor
It’s easy to feel like a real estate pro when you can walk around with the Zillow or Trulia app in your pocket at all times. But in my experience, there’s no substitute for working with a realtor. They have the knowledge and expertise to guide you through the buying and selling process – our realtor helped us sell our house within days. Plus, when you find a house you want to look at, you’ll have to work with a realtor anyway. Wouldn’t you rather look at the property with a realtor who is working for you and your interests, rather than trying to get an appointment with the listing agent who is working for the seller?
Location, location, location
This is just an all-around common-sense real estate tip. Walk around the neighborhood of your prospective house to get a true feel for the area. One of the most beautiful homes in our neighborhood, an elegant brick house on a large, wooded corner lot, happens to be on a terrible street. We call it “Bark Avenue” because every time we walk our dog, we get barked at for probably five solid minutes by packs of dogs on both sides of the street. They aren’t ordinary barkers, either, we are talking about beagles. And bloodhounds. These are serious barks! You’ll want to avoid the Bark Avenues of the world by thoroughly vetting your surrounding area. Make sure it’s clean and safe, with good neighbors too!
If it seems too good to be true…
It’s a fact that there are amazing deals to be found on fixer-uppers that will give you immediate equity with just a little elbow grease. There are also some properties that are listed at unbelievably low prices — suspiciously low — for no apparent reason. Well, as it turns out, there is usually a reason. Just the other day, idly browsing Zillow, we found a tempting fixer-upper down the street from us. It was listed at an incredibly low price that had been on the market for more than 200 days. According to our realtor, a neighbor had told her that the house was formerly a meth lab. Ah, of course. Needless to say, we decided to steer clear of this particular bargain property.
Plan the work, and work the plan
That’s a quote from my old boss. I always found it extremely annoying, but now I must admit that it’s a pretty great mantra. It comes in handy in the house-flipping business, too. Before you even consider buying a house, be sure you know exactly what you’re getting into. Get an inspection – at $200 to $400, it’s worth the investment to head off any potential budget-busting problems. Tour the house repeatedly and make a detailed list of everything you’ll want to do. You need a ballpark figure of what your expenses are going to be to determine whether this house is worth it as a flip. If you don’t feel you have the expertise for this, bring in a contractor to check out the house with you.
Stick to your budget
Once you have listed all of the renovations you’re going to make and set your budget, figure out how you’re going to pay for it. Are you able to save up your money and pay for renovations with cash as you go, rather than taking out a loan? Or is a home equity loan (borrowing against the equity in your house) a better option? When we bought our first house, we received a 203K loan that we were able to use to make all of the necessary renovations; the loan was folded conveniently into our mortgage payment.
Be willing to work
In our experience, one of the key ingredients of a successful house flip is keeping costs down by doing a lot of the work yourself. In addition to working full-time jobs, we have spent much of our free time lately on our long list of never-ending house projects. Last year, we actually took a whole week of vacation time to get a head start on our to-do list. Instead of relaxing poolside with a book, I found myself dodging gnarly spiders as I painted our basement. Good times! Luckily, we also had a lot of free help from generous friends who were willing to spend time during their precious weekends doing demolition work with us. Truthfully though, there is something enjoyable about bashing plaster walls to smithereens. The fact that a “rage room,” where people actually pay to smash things, has just opened up in town makes me wonder if we didn’t miss out on a business opportunity.
Have the skills
This brings me to my next point: know what you’re doing or have a trusted contractor who does. Not to brag, but I am pretty good at smashing things. My husband grew up working construction with his dad, so he has some pretty impressive skills, and he’s willing to learn even more. There are tons of helpful videos online to help you learn how to do most anything. HOWEVER. I am a firm believer in knowing your own limits, and, first and foremost, in being safe. If you are not comfortable trying something, do not attempt it! When it comes to plumbing, electrical work, or using dangerous machinery like a table saw (or any kind of saw, really), leave it to the professionals. You can try a website like angieslist.com for free or ask Facebook friends for their recommendations.
We are trying to save up our money and pay for our renovations with cash, so we have been moving along at a snail’s pace. Our renovation project has been going on for more than a year now! We have grown used to living in an unfinished HGTV show, filled with construction materials and power tools. I think the toilet and sheetrock currently being stored in my living room really tie the room together. Hey, at least we have doors on the bathroom and bedrooms now! That made for an awkward visit when my father-in-law came to stay with us. Anyway, just keep the big-picture goal in mind and be willing to live through the discomfort of a home renovation. It will all be worth it in the end! At least, that’s what I keep telling myself.
The decision on whether to buy or rent is a complicated one, impacted by tons of variables, emotional factors as well as financial ones, and your own personal preferences. It’s one of those areas where there isn’t a right or wrong answer. If you do decide to buy, a fixer-upper is a great option that will allow you to build instant equity and financial security.