What's the Deal with House Flipping?

Maybe you have seen it on TV. You may know some entrepreneurial friends flipping houses and earning thousands of dollars. But what is house flipping? Is it for you?

What is House Flipping?

House flipping, if done right, is a quick profit venture. An investor buys an old real estate property at a low price, improves and renovates it, and sells it at a much higher price. Theoretically, the investor should finish the process quickly, at the lowest renovation cost possible, to maximise profits. The profit gained can be used on the next flipping project. The main thought is to buy low and sell high. Sounds easy, right? Unfortunately, it’s more than that.

Flipping houses is not as simple as it seems on TV. Flipping houses has its challenges, and if it fails, it can lead to financial losses. You also need to invest time and effort, and for many, it can involve emotions.

House flipping is more than just making gains. It will also take some considerable financial investment. A house flipper must be ready for the following costs: taxes, house deposit, insurance, renovation costs, and mortgage repayments.

Things to Consider When House Flipping

·       Do your research.

Doing research and being well-informed will help you avoid pitfalls and prepare for potential problems. In addition, being prepared will help you keep your cool and plan when things don’t go as expected.

Since you will be dealing with tradespeople, it will be helpful to be familiar with tradie speak so you can be on the same page. It can also help avoid any possible miscommunication that results in extra renovation costs.

·       Have a budget and stay on top of it.

How much can you spend, and how much are you willing to spend? Having a clear budget can help you stay in control of your project. Research different contractors’ rates and ask them for their estimate of how long your renovation will take. Look for a contractor that will meet your quality requirements and your budget.

It is essential to stay on top to avoid unnecessary stress during the renovation. A good rule of thumb to follow is to spend at most only 10% of the property’s value on renovations.

·       Choose the right property.

It is crucial to choose and buy well when house flipping. Do not get too excited. If it is not under-priced, walk away to the next one. Do not get caught up in the heat of the auction. An undervalued property minimises your risk and maximises your earning potential.

How undervalued the property you buy is one of the main determinants of how much you will gain. When you buy a property that is not undervalued, you are exposing yourself to more losses.

Following the 70% rule is a good basis when deciding if the property’s price is right. It states that you should not pay more than 70% of the after-repair value of the property less the repair costs. For instance, if the after-repair value is $200,000 and it will need $30,000 for renovation and repair, then an investor should not pay more than $110,000 for the property.

·       Be ready to work for it.

Flipping house is a lot of hard work. People enter it thinking they would find easy money, not considering that renovating a property entails work. It needs a lot of studying and research for it to be a successful endeavour.

For one, you need to study the community where your target property is. You should know what type of property is currently in demand, so you must avoid unique properties if you want to sell as soon as possible. You must also be aware of how much people are willing to pay for a house in a given location.

Then there is the matter of getting your finances in order. Choosing the right loan facility to finance your project can make your venture smoother.

But one thing that many are not ready for is the amount of time that house flipping will take from their schedules. You will be working with a limited timeline so that you won’t go beyond your budget. There will also be stages in the renovation that may need more supervision and communication to ensure that everything goes smoothly. To say that it is not for the faint-hearted is an understatement.

Venturing into a House Flipping Project? Let Makes Cents Help You Choose the Right Loan.

At Makes Cents, we are dedicated to helping you find the right financial facility for your renovation and rebuilding projects. Check out our comparison tables to find the loan that suits your needs and budget.