Home flipping is making a comeback, driven as much by the rebounding real estate market as the sheer number of TV shows that make house flipping seem easy. Yet house flipping is fraught with risk, since failing to sell the house for the price that covers your costs means you worked for nothing, or worse, lose money on the deal. Here are three essential tips for first-time flippers to follow.
Know the Literal Costs
You make or break your budget when you buy the home. Know the ballpark estimates of what it will cost to repair what is wrong with the home and have a budget of what you will do to make modest improvements to the property.
Go for Elegant Touches, Not a Luxury Remodel
The home should stand out from the crowd by being ‘best in class’. For example, homes with two-tone walls stand out in a neighborhood with drab white walls. Upscale lighting and plumbing fixtures make a home look fabulous without the expense of walk-in showers with marble tiles. Look for affordable upgrades that look expensive. For example, recreate the appearance of a granite garage floor with epoxy coating. Install dual vanities in bathrooms and accent tiles instead of ripping out and renovating the whole bathroom.
Know the Market before You Renovate
Know the market. The ideal case is remodeling a home to be just a little bit better than the neighborhood expectations, such as having slightly nicer kitchen counters, one more bedroom, or a nicer yard. However, it is more important to meet neighborhood norms.
For example, you should put the money into adding a second bathroom in a community where two bathrooms are standard rather than having a three bedroom, one bath home with a chef grade kitchen. Conversely, if the neighborhood features a mix of homes with two bathrooms and three bathrooms, you could avoid installing a third bathroom and make other improvements instead.
Another factor to consider is neighborhood demographics. If the area is full of families, the ideal home to flip will have large family spaces or a configuration you can turn into a large living room, as well as a yard with space for the kids to play. For communities with many retirees, the ideal house to flip is a single-story ranch house that is easy to make accessible to those with mobility and health challenges, which rules out properties with steep driveways and stairs to get to the house.
Before you even consider a property, run the numbers beforehand so that you don’t pay more than you will get for the property after it is renovated. Know the neighborhood demographics so that your home improvements fit the expectations of your likely buyers. Understand the market so that you offer a renovated properly a little nicer than the neighborhood average without spending a dollar more than necessary. Go for modest upgrades that look luxurious instead of the more expensive luxury that’s what will yield the highest return on investment.