JIM LOWENSTERN – The promise of turning a quick, hefty profit on house flipping can be irresistible, but it takes a certain investment savvy not to flop on the flip.
Flipping is a real estate investment that involves buying a distressed property, swiftly improving its value – typically through physical upgrades – and then selling it at a higher-than-purchase-plus-improvements-cost, in order to pocket a profit.
• Hire a pro to find a good deal. Flippers typically know the drill, but if this is your first flip, hire a real estate agent adept at making offers, negotiating, securing a mortgage and closing the deal – rudimentary stuff for an experienced agent.
Your agent will help you investigate your investment market and give attention to market moves – up or down – and the prospects for a resale in the near future. That due diligence is necessary before you start your search for the right property.
• Plan ahead. Avoid getting in over your head. Have a clear plan for the location and type of property you seek, the improvements you’re willing and can afford to make and the amount of time it will take to turn the property around.
Get your feet wet by starting small. Save larger, more complicated deals for later – when you have more experience.
• What type of property do you seek? One that needs only a cosmetic touch up for a fast turnaround. Or one on the brink of condemnation that needs major, property-wide improvements that could take longer? Your budget can help you make that decision.
• Consider resale appeal for the specific neighborhood. Will the fixer upper be a good fit for the neighborhood, once you’ve prepared it for resale. Will it sell at or near the median price in the neighborhood? What sort of amenities do buyers seek? Is a garage a must? A deck? How many bathrooms are common to the area. Too many improvements could price you out of the market.
• Obtain financing. Once you’ve found the property you plan to make over, secure the loan. Don’t forget to factor in the cost of the necessary improvements. You’ll typically need more cash than you expect to spend on repairs and improvements. Expect unexpected expenses. If you don’t have extra cash on hand, you may need a larger mortgage that comes with extra financing for fixing up.
• Once you’ve purchased the home, get to work. Be sure to cover the basic repairs and upgrades that put the home in a condition buyers in the area seek. Don’t go overboard. Think twice about an expensive kitchen or bathroom remodel that will cost you more than you can recoup on the resale.
The best flippers are do-it-yourselfers who can perform the work. Otherwise, to save money, hire cheap labor (college students, day laborers, etc.) for basic painting, landscaping and other work that doesn’t require skilled workers. less-skilled workers can perform.
• Set the stage for the resale. Once you’re satisfied that you’ve made improvements that have sufficiently increased the value of the property, prepare and stage the property for resale. Furnished houses are more inviting to potential buyers than unfurnished, but only if the furnishings and fixtures compliment the floorplan and leave room for imagination. You want potential buyers to be able to visualize the house their own.
Create a canvas for the buyer. Don’t get too cutesy or dramatic with the decor. You are an investor not a new home builder. As a rule, neutral tones work best. As with any home for sale, make it look inviting from curb appeal to the master bath.
• Keep your real estate agent in the loop. If you’ve made all the right moves, your real estate agent can help you market the home for a significantly higher price than your purchase price. Be sure the agent knows what improvements you’ve completed so he or she can highlight them to prospective buyers.
Jim Lowenstern is broker owner of Castles Unlimited in Newton, MA, has three decades of experience in luxury real estate. He also is a local radio talk show host and is a philanthropist with NewEnglandProsperity.org, a website dedicated to giving back to charity during real estate transactions.