Before You Flip a House: Nine Tips

Being Licensed in the real estate business, one of the most common topics people want to talk about with us is flipping houses. For the right people, it can be the best option for a first house. For other people, it can be a great investment. Either way, it can be a great opportunity to improve your financial situation. Or it could be a massive headache that digs a financial hole. Hopefully, these nine tips can help you experience the former and avoid the perils of the latter. Here are nine tips to put into action before you flip a house.

  • Know the market

This was the number one thing that came to my mind when putting together the list, it is the first priority to think about before you flip a house. This step should not take the most time but make sure you understand the effect every characteristic of a house and how it rolls into the value of the home. How does the school district affect it? What kind of lot does it have? Early on, in doing your research, be careful of “rose-colored comps” or comparable properties that are simply not in the same category. For example, while they both might have the same bed count and similar lot sizes- there are so many variables that can tweak a price, just because if the house is in the same zip code and has three beds, do not automatically assume that the house you are flipping will get an offer just like that when you are done. The market can change and move up and down but go through all the potential comps you can find so you can have a price range which then dictates everything from color to budget going forward. A good Agent comes in handy here.

  • Bigger is not always better

This tip is HUGE and possibly could be considered an “insider” tip because it does not necessarily seem like the case until you experience it. While that super cheap three or four bedroom house has dreamy comps compared the little two bedroom cape that has middling comps, it never is as simple as “flipping this house will costs this much to buy, will cost this much to fix up and will sell for this much”. The main element is that these are all estimates and the bigger these fix-ups get, the bigger the range of outcomes is. The bigger the range of outcomes, the bigger the risk. It still is not only just risk though, but risk-averse people also do not normally decide they should flip a house, it is naturally a risky endeavor. There is no “one-size-fits-all” formula to follow. The main focus of this tip is that I have encountered and worked with different individuals but two extreme examples stand out;

BIG Example
One individual wanted to flip a house and found a nice but dilapidated three bedroom, two bath home on a double lot. It was in rough shape but for the area, it was a great deal for under $40k. The property was a fairly large house and the flippers worked on that one for almost a full year and it turned out great. I will get into some of the issues they ran into on this particular flip in a later tip but in the end, they had the house for over a year which is not ideal and they ended up making good money on the place. Coming out in the black on a flip is always a win so that turned out good for them.
small Example
On the other side of the coin, another home flipper wanted to flip a house in a similar area to the first example but they found a sub-1000 square foot home with two bedrooms and one bath. They paid almost double the first example at $60k, but with less square footage came less work and they were done in two months. These two flips I’m using as examples seem like they don’t have a lot in common. Overall, they do not, besides from the flippers’ own words, they made about the same amount of money in the end. The first example took over a year and a lot more of an investment, the second one took two months and they ended off fairly even in the end. When you are in the black on a flip, it is a success but especially early on, it is worth a lot more to your time to be savvy when you flip a house than to do the biggest house with the biggest price tag, sometimes you have to get granular with your time and realize that your time is worth more on a smaller, seemingly safer flip. Now, granted, this is not always the case- I have tried to do very ambitious flips and there are some opportunities that you come across on bigger houses that are too good to pass up but especially to less experienced people that are looking to flip a house, less square footage to sand, paint, run wires through and buy cabinets for is the way to go.
  • Understand your costs

This tip is fairly self-explanatory and you can find it said in various ways through the rest of these tips but it needs its own section to stress its importance. No matter how experienced you get flipping houses, always build a buffer because IT WILL NOT GO EXACTLY AS PLANNED. Yes, naturally you build a little buffer and you should honestly add 15% onto everything just to make sure you don’t spend more than you expected but no amount of prep work can prepare you for everything- one flip, they got it under contract, everything looked great, the flippers were ready to move on from it and the deal fell through. The sewage drain pipe seemed clogged, it was crushed underground and was not even making it to the road. This was after they thought the house was sold and there was mature grass already growing. THEN they had a several thousand dollar excavations and replacement project. That is an extreme example but plenty of flips have their own issues that cannot be prepared for, it is just part of the process that you have to be capable of handling.

  • Guts matter

This tip does not mean only do houses that are a “clean it, paint it, and replace the toilet” type flips. Those are out there and can make you some money, there are some other ones where the foundations are falling apart. If you know what you are doing and can be prepared for it, understand the value of good guts. There’s nothing like being able to keep great, sturdy parts of an old house when flipping. It looks great, it can even help sell it to some people. Overall, this tip put another way basically just says, good guts mean you have to spend less money.

  • Prepare for the worst.

This is very general advice but it is so true to think about before you flip a house. Be prepared for it not to go well. This is not doom and gloom point of view but as stated in previous points, things go wrong dealing with houses and structures. That is why it is not for everyone. An individual that wants to do multiple flips will have to be prepared to get through tough issues that you can’t expect. When you run into these issues, you have to be able to resolve it and move forward.

  • Okay, now what happens if it’s worse than that?

So taking from Tip #3, prepare for the worst and you think you finally have your project sold and it falls through because of a crushed sewage line in the back yard. The house sat on the market for another month after that, are you prepared for that to happen? That was after it went over schedule and sat for a winter. It’s difficult to predict what will happen in the real estate business but being prepared will help you deal with the issues that arise along the way. Because they do.

  • Be handy or build a team that is.

Being handy can be extremely helpful in this business, there’s sometimes where it is not worth it to go and hire out to get a project done, sometimes it needs an afternoon from someone handy. If that can be you, it can save a lot of headaches. Another advantage that is not exactly being handy per se, when you do hire out, you can check work and understand the difference between good and sub-par work. That difference with minor things can build up over time and really help sell a place if you have an eye for quality when you do a flip.

  • Talk to people with experience.

I do not know where to start without talking to some experienced people in this business. Not just contractors or realtors, and definitely not just watching HGTV, but talking to people within reach that can give you pointers and tips that can save you money and time (and maybe years on your life) with their experience. Shoot me an email if you want to, I am young and fairly fresh but I have some experience doing a few flips and I enjoy talking about it with other interested people.

  • Have an agent that is ready to work with you and understand flips.

This can be huge. I have done flips and I am also an agent, this is not an uncommon combination but having someone that understands that cheap houses do not always equal flip opportunities is very valuable. On the other side, an agent that understands the potential in a dilapidated property can be a make or break aspect to your team. I would love to help you get into the business whether helping from a distance somewhere else. If you are in Western Pennsylvania, I can work directly with you as an agent and advise on the flip.

One time, a guy came into my office wanting to get into flipping. It was a natural progression from the current business he was in so he wanted to talk about finding some flips. We talked but eventually, he was scared off because I also did flips. He thought I would take all the good opportunities and let me tell you, I would never do that for a client. Not just because that would not be putting the client first but because there are plenty of flips to be had, and if you want one, I am more than happy to be the agent that helps you buy it and later sell it. If that is my role in a flip, I will always be good with that!

Rob Sulava is a licensed real estate agent that has experience researching, managing, and laboring with flips. You can get in contact directly here.

1 comments

Leave a Reply

Your email address will not be published. Required fields are marked *

*

*
*