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It takes time to flip a house. In this method of real estate investing, you have to line up your financing, home in on the perfect property, complete a killer rehab, and then market and sell the house at a premium -- all in a pretty short span of time. Amidst all the hustle and bustle, it can be easy to go off track or skip a step.
Want to make sure your next house flip goes smoothly -- and profitably? This checklist can help.
Finding the right property
1. Know your budget
You can't even begin to look for properties until you have a budget in mind. How much can you afford to spend to flip houses? This number should include your repair costs, money for closing costs and a down payment (if you're financing), and, of course, a buffer -- just in case. You don't want to drain your accounts, either. You never know how long it will take the home to sell, so don't stretch yourself too thin.
2. Have cash ready or get preapproved for your loan
If you're planning to make a cash offer, have the money ready to go in your accounts. If you're financing your purchase instead, then start shopping for lenders and get preapproved for your loan. A preapproval can make you a safer bet in the eyes of sellers, and it could be what puts you ahead in a bidding war -- which is a common situation with low-priced potential flips.
3. Analyze the local real estate market
Take some time to study up on your real estate market. What areas are up and coming? Where are schools good and property values strong? You'll also want to home in on neighborhoods that might not be so great of an investment so you can steer clear, and be sure you have a handle on local home prices and trends, too.
4. Pull comps, and get an agent's opinion
Once you find a piece of real estate you think might have potential, pull comparable sales and see what you're working with. Is there room for profit at the home's current price point? Could you get the home up to speed feature- and amenity-wise?
You might also call in a local real estate agent for a quick assessment. Do they think the home will be marketable on the back end? What will it take to get there? How is the area performing in terms of sales and home prices? Agents are very tuned in to the local market, and they can be a great resource when you're trying to evaluate a potential real estate investment.
5. Bring in a contractor for a walk-through
A real estate agent can be a good help, but you also need to bring in a construction or contracting pro as well. Have them walk the property with you and scope out what repairs and projects will need to happen. Then, ask them for estimates on repair costs and timelines for each project. You'll need to consider these when deciding whether to make an offer and how much to bid.
6. Negotiate a great deal
If you want to make money flipping houses, then you need to follow the 70% rule, which says that you can't spend more than 70% of a home's after repair value (minus repair costs) if you want to make a profit. It's the gold standard when flipping homes and a solid way to ensure a good return on investment (ROI) on the back end.
If the home you're looking at doesn't quite fall under that 70% threshold, don't be afraid to negotiate on the purchase price -- especially if you're making a cash offer. You'd be surprised at how low sellers will go if they get to avoid a lengthy closing process that hinges on financing.
7. Get the home inspected
A home inspection is critical with any real estate purchase, but it's especially important when flipping houses. Additionally, you'll also want to bring in other professional inspectors to check for termites/pests, evaluate the sewage system, check for radon and asbestos, and more. The more thorough you are, the more likely you'll avoid hidden (and costly) issues cropping up mid-flip.
8. Tune in to buyer trends
Understanding the local real estate market is one thing, but you also need to have a pulse on area buyers, too. What are they looking for in a home? What features and amenities are trending, and which ones have fallen by the wayside? If you want your home to be marketable once your renovation is complete, you need to carefully consider those projects and choose in-demand, high-ROI ones from the very start.
9. Know your rehab plans early
Go ahead and hammer out your renovation plans as soon as you have an offer in. What needs repairing on the property? What changes and upgrades do you want to make? Pin down exactly what projects you want done and by what deadline. You'll need this before you can start finding contractors and building out your team.
10. Have your team ready before you close
Once you know what projects you want done, start putting together your team. Get bids from a few contractors and check their reviews, insurance, and licensing. You should also follow up with some of their past clients to be sure you know what you're getting into.
After you've chosen your team, get a scope of work in place and hammer out timelines, payment schedules, and other details for each project they'll be helping with.
Flipping the house
11. Get the utilities turned on ASAP
Just before you close on the home, get your utilities all set up to turn on as soon as you get the keys. While you're at it, go ahead and set up autopay for those bills, too. It can be easy to lose track of these bills in the midst of a busy flip. You also might not be stopping by the mailbox all that often to even see the bills in the first place. Setting up autopay protects you from costly late fees -- or worse, your utilities getting turned off in the middle of a renovation.
12. Order your materials, dumpster, and portable toilet
Your contractors can't start working until they have the necessary materials, so go ahead and put in your orders as soon as you pin down the scope of work. They'll also need a dumpster for any trash or demo work, and a portable toilet is a must if they'll be working long hours. You don't want your team going off-site, as this will only delay your time to market.
13. File for any necessary permits
Permits can seriously delay your renovation, so hop on these ASAP. You might need permits for any number of repairs or projects you're taking on, and if you're doing any demo work, your city may require a permit for that as well. This is when having an experienced contractor on your side can really help. They'll usually have a good handle on what projects need permits, as well as where and how to get them.
14. Stay visible, and check in often
Even if you've hired professionals for the bulk of your projects, you still need to be present at the job site -- and consistently. Stop by at least a few times a week, and schedule regular check-ins with each of your contractors. You should also institute regular milestones to keep your renovation on track.
15. Choose your listing agent, and keep them apprised
If you haven't already, go ahead and choose the real estate agent who will list and market your home. You'll want to keep them updated on your project as it progresses so they can start putting together plans for staging, marketing, and promoting the property. This is critical if you want the home to sell fast and at a premium.
16. Schedule a final walk-through with your agent and contractors
As you get closer to the completion of your house flip, do a walk-through of the property with both your real estate agent and contractors. Double-check the team's work so far, making note of anything that still needs to be finished. You should also create a punch list of little items and details that need to be hammered out before you list the home.
Before you part ways, schedule out a follow-up walk-through to be sure all these items have been addressed by your deadline.
Selling the home
17. Stage the home
Since the home is probably vacant, you'll want to spend some time on staging before officially putting the home on the market. In fact, according to an analysis from Redfin (NASDAQ: RDFN), vacant homes sell for more than $11,000 less than comparable occupied properties -- a hefty amount that will surely eat into your ROI.
Don't feel like you have to go crazy, though. Consult your real estate agent, and focus on a few rooms, at most. Data from the National Association of Realtors shows that the living area, kitchen, and master bedroom are most important in terms of staging.
18. Get the home cleaned
Renovations have probably left your property looking a little messy. While you can certainly clean the home yourself, it might be best to call in a pro -- especially if the home was in really poor condition when you bought it. Make sure they pay close attention to the bathrooms, the floor, and little details like the grout and backsplashes. These are things potential buyers will notice when walking through, and they'll probably make an impact on your listing photos as well.
19. Take great photos
Ask your agent to refer you to a great real estate photographer. If they have one who can do a video tour and interactive floor plan, that's even better.
If the market you're in is particularly hot, sight-unseen offers aren't uncommon -- and those images might be all a buyer sees before making an offer. Make sure you invest enough to stand out from other options.
20. Price it right
The right price is critical on a house flip. You want a price that's in line with local comps and home values, but also one that guarantees you a return on investment. It's often a fine line to walk, so be sure to consult your real estate agent for help. A too-high price may mean leaving your home on the market for an extended period of time -- and that means more in mortgage, utilities, and insurance costs, too.
21. Install a lock box
You don't want to be bouncing back and forth to the property every time someone wants to see it, nor do you want to turn down showings just because you're busy. Work with your real estate agent to install a Supra key or other type of lock box on your property once the home is listed. They should also be able to set up a showing service that can help streamline buyer appointments.
22. Be ready to negotiate
Just like you negotiated when initially purchasing the property, you can expect a little back-and-forth with buyers on the back end, too. Do some math, and determine what your be-all, end-all price will be if you're going to make a profit. You should also zero in on what concessions you'd be willing to make if asked. Would you pay a small portion of closing costs? What about repair credits if the inspection turns up an issue? Knowing how far you'll budge ahead of time will help negotiations go more quickly and efficiently.
23. Choose your buyer carefully
If you have more than one offer coming in, be choosy about which buyer you go with. Make sure they're preapproved, evaluate what down payment and earnest money deposit they're putting up, and consider the risk they present to the deal. How likely are they to get financing? Does their offer hinge on the sale of another property? You want the safest bet possible. Choose the wrong buyer, and you could find yourself back at square one a few weeks down the road. And after all, time is money when flipping homes.
24. Cash that check and repeat
Hopefully, your flip turned into a decent-size profit on the tail end. If it did, and you feel confident in your home-flipping skills, consider putting those returns toward another flip and continuing to build on those profits.
Seven house-flipping mistakes to avoid
The above checklist can help keep your house flip on track, but sometimes, that's not enough. Just as important? That'd be avoiding the all-too-common mistakes and traps that real estate investors so often fall victim to.
Here are just a few of the ones house flippers see often:
- Overimproving the home: You want your home to fall in line with what other properties in the neighborhood look like. Doing too much will likely make your home hard to sell, and you probably won't recoup what you put into it -- let alone make a profit.
- Biting off more than you can chew: If you've never flipped a house before, don't buy a turn-of-the-century property that needs a full gutting and rewiring of the entire electrical system. Start slow, build up your skills, and work up to those harder properties, if that's your goal.
- Not budgeting enough money: You need to be generous when budgeting money for a home flip. In most cases, unforeseen expenses will crop up, and if you haven't allotted enough, it will only eat into your profits and reduce your ROI.
- DIYing too much: If you're a trained carpenter or electrician, then, by all means, complete some of your project's renovations solo. But if you're just a rabid "Fixer Upper" fan and House Beautiful reader? You might want to leave the bulk of the work to a pro. It costs a lot more to fix something done improperly than it does to do it right the first time.
- Evaluating the house solo: You probably have a good eye for potential, but you never want to buy without at least consulting a contractor. You need a solid handle on your potential repair costs before making an offer. Without this information, your chances of profits are slim.
- Paying too much: If you want to make money flipping houses, finding a good deal is critical. That's why most investors look to foreclosures, distressed properties, REOs, and more for potential homes. Be creative in where and how you look for properties.
- Hiring based on cost, not experience: Cost certainly matters when hiring contractors, but experience matters more. A highly experienced pro may come with a bigger price tag, but they'll also likely do the project faster and at a higher quality. Their work is also less likely to require repairs, which could cost a pretty penny to fix later on.
When flipping houses, you should also make sure to have a contingency plan in place. In the event your home doesn't sell as quickly as you expect, would you be willing to turn it into a rental property? Is there even a market for that? The longer your home sits on the market, the less you stand to make, so make sure you have a backup plan ready to go.
Just starting your home-flipping journey? Don't miss our beginner house-flipping tips. They'll get you on the path toward flipping success.
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