6 Things to Know When Analyzing a Flip

Many people looking to get into real estate to flip houses think these properties have easy fixes. When you talk to someone who has been doing it for a while, you’ll realize that’s rarely the case.

There is money to be made by buying a home for a good price, fixing it up and reselling (or “flipping” it), but rarely do these homes just need simple coats of paint or new carpets.

Here are some things of which you should be aware when thinking about flipping.

Adding value. Most houses that do well as flips need to have some construction work done to them. Sellers don’t give houses away that don’t need work. Value must be added to the property through some construction. If you can’t do the work yourself, you’ll have to figure out whether it’s worth hiring a contractor.

Location. There’s an old adage in real estate that says the three most important factors in valuing real estate are location, location, location. Look at things like its proximity to good schools, parks, shopping, restaurants and public transportation. Shy away if it’s near a major highway, an airport or close to train tracks.

What the property looks like. Although you want the property to be unique in some ways, you’ll also want it to be similar to others in the neighbourhood. In other words, if most homes in the area have three bedrooms, two baths and are about 1,800 square feet, you might have trouble selling a two-bedroom, 1,500-square-foot home with one bathroom.

Do some thinking. Buying a home is a very emotional decision for most purchasers. When choosing a house to flip, you’ll have to think about how you can tap into that emotion and what you might be able to do to make prospective purchasers fall in love with the home. Remember the importance of curb appeal as well!

Look carefully at the numbers. There is no way around this one. When you’re considering buying a house to flip, you must look at the financial aspects of the deal. What you need to do is to figure out how much it’s going to cost you to do the fixes as opposed to how much the sale price is likely to be. It’s not as easy as it seems since it’s mostly speculative.

Listen to your lender. If your lender is saying there isn’t enough equity in a possible flip, listen to them. They’re in the business of making money and they want to give you the loan, so when they tell you to look for a property with a likely better return, call your agent and get busy hunting for one.