Flipping a house, or buying a property that you intend to fix up and sell, can be a lucrative venture. Without careful planning, though, it can lead to a financial disaster. If you’re thinking about buying a property to flip, here are some important rules you should adhere to so that you’ll be likely to earn a profit, rather than incur a loss.
Don’t Spend Too Much
Many novices get into trouble when they put so much money into a property that they wind up with little or no profit. As a general rule, the amount that you invest in a house (i.e., the sum of the purchase price, material and labor costs for repairs, utilities, insurance, and all other costs associated with buying and renovating the property) should not be more than 70% of its after-repair value.
If things go according to plan and you sell the house for an amount that’s in line with your expectations, you should earn a sizable profit. If things don’t go according to plan (and they often don’t), you will have a cushion and should still wind up with a profit, even if it’s not quite as much as you had hoped for.
Be Prepared for Unexpected Costs and Delays
Whenever a property is renovated, there is a chance that workers will discover problems that no one knew about before the project got underway. Mold, damaged insulation, electrical and plumbing problems, and insect infestations are just some of the issues you may encounter. Any of those problems can set your renovation project back weeks or months and add thousands of dollars to the overall price tag. This is why it’s crucial to leave wiggle room in your budget and to be flexible on your timeline.
Set a Realistic Asking Price
If you buy a house to flip, you naturally want to earn the highest possible profit, but you have to be reasonable when you set a list price. Your asking price should be based on the recent sale prices for comparable properties in the same geographic area. If you ask for too much, buyers won’t be interested. The house may sit on the market for months, and you will have to lower the price to attract a buyer.
Get Financing for Your Fix-and-Flip Project
You likely don’t have enough cash to buy a house on your own. In a competitive market, you may have to snatch up a property quickly to avoid losing out to someone else.
Sachem Lending is a private lender that can help you get the funds you need fast. We offer short-term loans that are designed to help real estate investors finance fix-and-flip projects. Contact us today to learn more.