Who Doesn't? HGTV has ruined everyone, myself included! They make it look so easy don't they? After recently diving into the "flip game" myself; here are Nat's Top Ten Rules to Flipping!
Rule #1 - MAKE A PLAN
You would think this would be obvious but some folks just buy a house and then think they will plan after. This is a huge mistake. You need to know what your plan is before you buy. Where are you buying, Who is your Contractor, What is your renovation idea & how much would dit cost? How else are you to establish a purchase price?
Rule #2 - Establish your budget BEFORE you purchase
Your budget isn't just about the cost of renovations. You must consider all your expenses before you buy...
a. How much could you sell it for after it's complete?
b. How long will it take to sell? (Are you paying interest on a loan)
c. Insurance? (yes you need insurance in case it burns down)
d. Cost to sell = about 10% of the final sales price
e. Permits? (Yes, Get them)
f. Inspections? (YES, Get the home inspected fully before purchasing)
g.Title insurance? (YES get this)
h. How much will it cost to fix? (Use a contractor to price this)
i. Contingency - more on this below...
Rule #3 - Use reputable contractors who are licensed to do the work! In our real estate contract it is expected that all work be completed in a "workman like manor" So don't do work yourself you are not qualified to do or hire some random person without references. It could potentially cost you more in the long run. Do the right thing and get proper permits & final inspections from the city. It sends a red flag to the buyer when you do not and could potentially give way to a law suit if say the house burns down after being sold.
Rule #4 - Neighborhood restrictions and local building codes.
Some areas have water restrictions, set backs, Property owners association, deed restrictions, historical restrictions, etc. Check these before purchasing to avoid any violations.
Rule #5 - Financing
Cash is king so if you can pay cash that is simpler and costs less to close but if not and you plan to use an investor make sure you have a proper agreement in place spelling out the terms so there are no problems later. Remember you will be paying a hefty interest payment if you borrow from a hard money lender. Be smart, Do your research or consult someone with experience. Be conservative with your margins until you've got a few under your belt.
Rule #6 - Taking title in your own name
I absolutely recommend establishing an LLC to purchase properties under so that they are not attached to you personally. If things go south and you get sued, having the property attached to you personally could mean you potentially lose everything. Seek professional advise from a reputable real estate attorney regarding the best way to take title.
Rule #7 - DO IT RIGHT
If you are going to be a flipper, Take pride in what your doing and do the right thing when fixing the home. Imagine you or a family member were going to live there and make sure the home looks and functions beautifully and that it's SAFE. A lot of people flipping now a days cut corners and try to hide problems or get in over their heads because they didn't budget properly and sell homes that are poorly done or potentially hazardous. THIS IS ILLEGAL. IF you know of a problem as an owner/seller then you HAVE to disclose that to a buyer. If you don't or try and cover it up, not only is this illegal but could cost you or the person who bought the home time, money, or even health.
Rule #8 - Have a CONTINGENCY! SO VERY IMPORTANT!
This is for the unexpected problems that pop up and THEY ALWAYS DO! Give yourself a cushion just incase and if not then you pocket that extra money as profit. I recommend at least 7%-10% of your overall Reno budget. So $50,000 reno = $3500 - $5000. You'll thank me!
Rule #9 - DO YOUR RESEARCH
If you are not partnered with an agent then at least take the time to really research the area you are thinking about buying in. Are values going up or down? How long is the average market time? What is the average sales price based on beds, baths and square footage, condition? Is it in a Flood zone? Use comparable's that are actually comparable. An appraiser is not going to use a home that is 5000sf to compare to yours that is 1500sf and so on. Like = Like.
Rule #10 - Don't go over board!
You are not designing for yourself, you are designing for what a potential buyer wants. Keep that in mind when selecting finishes. Trends come and go so you need to be up with what is selling homes now. Know the neighborhood you are selling in; If it is traditional neighborhood and your potential buyer is 50 years and older, they may not like that modern industrial look. Keep it clean and simple with design as that best allows buyers to envision themselves in the space. Splurging in some areas and not in others can be challenging. It's a balancing act, but if nothing else STICK to your BUDGET!
HAPPY HOME FLIPPING! SEND ME BEFORE & AFTER PICTURES!