The idea of ‘flipping’ houses has become a very popular idea, made even more popular by numerous reality television shows. At Fortier Mattila Appraisals Inc. we have the opportunity to deal with successful property ‘flippers’ regularly. Through consultation with people successful in flipping homes we’ve developed a beginners guide to flipping. This article is the first of many aimed at providing some general background knowledge on the keys to a successful flip. Enjoy!
1) Know your budget (financial and time) · How much cash do you have available for a down-payment? Closing Costs? Insurance? Property taxes? Utilities? Holding costs? Can you pay for all of the renovations out of pocket or do you have to finance the renovation? Can you use some of the equity in property you already own? What is your renovation budget? Have you accounted for overages? Does your budget allow for the unexpected? Get pre-approved, don’t loose out on a deal because you weren’t prepared. How long of a time period are you looking at start to finish? 2 months? 6 months? How many hours a week do you plan on allocating towards the flip? How does your current 9-5 affect the time commitment necessary for the flip? Keep in mind that projects can take longer than anticipated and that with a flip time is money.
Fortier Mattila Appraisals Inc. can help by providing an appraisal of your existing property for refinancing so you have the cash available for your flip, and/or we can provide an “as proposed” valuation of what the property will be worth once renovations are completed.
2) Know your skills and organize a team. How much of the renovation work are you capable of doing yourself? Can you drywall? Tape and mud? Install Flooring? Baseboards? Paint? Do you have friends/family in the trades that may be able to help you? Can you line up the required carpenters, painters, roofers, drywallers? Remember municipalities typically require licensed electricians and plumbers and alterations can often require a permit of some sort. The most important thing is for the work to look professional and not cheap.
Fortier Mattila Appraisals Inc. has appraisers who built and have flipped houses in the past and we have a list of local contractors and sub-trades that can help you develop your team.
3) Know your market · What do renovated houses sell for? This typically reflects the upper limit. Which neighborhoods offer the highest return on investment? What kinds of homes tend to sell for the highest price on a per square foot basis? Bungalows? Bi-levels? 2 story homes? What square footage is required for a successful flip? Can you make a high enough profit flipping a 600 square foot house? Is it too costly to renovate a 2000 square foot house? What types of renovations are likely to recover the highest proportion of their costs and which will add value on top of their costs? What renovations should you stay away from?
At Fortier Mattila Appraisals Inc. all we do is appraisals. It’s our job to know your market and we take pride in being up to date on current and emerging trends in all markets that we service.
4) Select a house that offers a good potential profit. Look out for bank repossessions, estate sales, auctions, tenders, rental properties, as they may sell at a discounted price. Identify properties that are dated, but otherwise appear in good condition, and properties that are underpriced for that neighborhood. Do the math PRIOR to making an offer, what kinds of renovations are required? After the cost of those renovations what is the likely profit? The notion of picking the worst house in the neighborhood and renovating it to be one of the best is a good rule of thumb. Remember that the best house in a neighborhood has it’s value limited by the surrounding properties. Select a realtor that you trust to help in making an offer, stating sale conditions, and filing out the necessary paperwork. Get a home inspection (identify any potential issues prior to purchasing). Select a lawyer that you trust to ensure the transaction goes through smoothly.
Fortier Mattila Appraisals Inc. has licensed appraisers that can provide both ‘as is’ and ‘as proposed’ valuations that a financial institution will rely upon to finance both the purchase and proposed renovations. We can also provide progress inspections to ensure that the necessary funds are allocated when they need to be.
Flipping homes is not for everyone. However selecting the right property, developing an appropriate renovation plan, and managing your budget efficiently are key to success. Ask the professional staff at Fortier Mattila Appraisals Inc. how we can help you make your flip a success.