House Flipping Tips

[Gryphon]

A few tips on "house flipping." The market is cooling, so it isnt as lucrative as it was a few years ago, but some parts of the country are still showing healthy growth in residential real estae.  Most are probably common sense, but Ill share what I know.

1. Buy the ugly duckling. The smallest or ugliest house on the block makes a great candidate for a flip. If a neighborhood is full of homes that are 3,000 square feet...buying the 1500 sf "black sheep" is a great way to get a good return on your investment. One of my flips was the purchase of a 900 square foot house in a neighborhood dominated by houses that were in the 3,000 to 7,000 sf range. We got the house for a song from an estate...added a dynamite kitchen and a killer master bath, and sold it before it was finished to a couple who already lived on the street and had been looking to downsize without leaving the neighborhood. (We paid $130,000 for the house, sank about that same amount into it, and sold it for $390,000)

2. Buying houses from estates, foreclosures, and other "bad luck" situations usually means a lower asking price. Banks often want only what they are owed on the house. Heirs often want to liquidate estate assets quickly...meaning they will sell at lower prices. Also, estate houses are often the exact ones that need "updating" because the elderly owners havent been able to keep them up as younger owners might have. Another "flip" I worked on was an estate house...clean and solid but cosmetically awful. We purchased the house for about half what others in the neighborhood were going for...$140K. Put $120K into a kitchen expansion, turning the existing first floor bedrooms into an awesome master suite, and then added two kids bedrooms and a bath in a new second floor, along with a cosmetic redo of the whole house, and sold it for more than we expected @ $400k.

3. You want to strike a good balance between what you pay to buy and fix the house versus what other comparable houses are going for. If its a $300,000 neighborhood, and you get a "bargain" for $200,000, but have to sink $75K into it, you probably arent going to realize a lot of profit.

4. Consider your carrying costs. Every month that the house is under renovation or back on the market, you're going to be making mortgage payments on it (unless you are lucky enough to have cash on hand to finance the whole thing). Mortage rates on investment properties are not nearly as attractive as owner occupied mortgages either.

5. Put the money where it counts. A "wow" kitchen and baths will sell a house everytime. Bedrooms and living spaces are usually fine with just a fresh coat of paint and new flooring. Adding windows to brighten up dark spaces, adding outdoor "living rooms", and tidy landscaping also score big points with buyers. Hardwood floors instead of carpets, granite countertops, and nice appliances are upgrades that are almost always worth it.

6. Keep an emotional distance from the property. If you make every decision as if it were going to be your home, you can get yourself in trouble. Pick a low priced granite instead of the gorgeous slab you'd love to have. Granite is granite to buyers, and they wont pay a premium. Same for tile. Use a plain floor tile--maybe spice it up with a nice accent in baths, but dont go overboard. To most buyers, the $2 a sf tile is worth the same as the $10 stuff.

7. Keep it generic. Colors and finishes should be subdued to attract the biggest number of buyers. Not to say that you have to paint the whole place white though...it should have style. Maybe paint most rooms a light khaki or light gold, and add some drama with some color in a powder room or dining room.

8. Have a good mix of partners. If you aren't going it alone, the partners you choose can make all the difference. My flips include an architect, a general contractor, a realtor, and an interior designer on the team. Everyone brings something to the mix and it allows us to turn the property for less money than if we had to pay market rate to all those trades.

9. Trim work is an inexpensive way to add pizazz to a lackluster house. Larger baseboards, heavy crown molding, and nice casings are details that dont add much to the bottom line, but really impress buyers. Consider adding these details to the foyer, main living spaces, and the master suite. I've worked on some very quick flips where all we did was basically paint and refloor the house. We've added trimwork to such jobs and it has really made a huge difference.

10. Keep original details. Old house details that give the place charm should be saved at all costs. Giving buyers old home charm with modern conveniences is something that appeals to many, many people.

11. You can even flip new properties, with no work involved. Many condo developers presell their units at auctions. Ive had some success purchasing low, and then selling high once the building is finished. One advantage, you often only have to put down several thousand as a deposit...you dont have to get a mortgage until closing, and by then you may well have a buyer. Warning, I think this market is cooling almost everywhere. Another warning: many developers "hold" a percentage of the units to do the exact same thing--sell for higher prices once the project is complete. It can be a bad idea to get in to those projects, because then your unit is competing with the ones the developer is selling.

12. Location, location, location. Its the most important thing in real estate, of course. "Hot" neighborhoods, ones that are close to enterprise, or in great school districts are things to consider. Predicting surging prices can help too. If you know that a major new business is opening near a property, it can be a good opportunity to get in while prices are low and then sell higher once that business brings people to the area.

[Locutus]

This something I've entertained doing for years but I always chicken out.  I seem to get stuck in analysis paralysis.  Any tips you can think of specifically for beginners? 

I would also like to hear from anyone else who's done this once or twice, or even does it regularly.

[Gryphon]

Ive done about six...none by myself, Ive always teamed up with others.
Thats the best advice I can give you--team up with some other people, so you dont have to shoulder the whole financial burden, or all the work.
A good "first flip" might be finding a small house that is solid, mechanically up to date, but needs a lot of cosmetics. A coat of paint, a ton of cleaning, and some other minor "fixes" are things most do it yourselfers can handle. You wont spend a lot of time or money on the renovation, but you'll see how rewarding it is, and it will "get your feet wet" for bigger ones.

[Locutus]

Can I talk you into coming to Florida to help me pick one out?     Just kidding.

Although I do think that partnering with someone who has done this before on the first two or three you attempt may be  a good idea.  Picking the right property is critical when doing something like this, especially the first time.

[Gryphon]

Can I talk you into coming to Florida to help me pick one out?    Just kidding.

Although I do think that partnering with someone who has done this before on the first two or three you attempt may be  a good idea.  Picking the right property is critical when doing something like this, especially the first time.

Absolutely! I mean, if you dont make that first bit of money, you cant go on to make the second.
One alternative is the live-in and flip. A couple Im friends with got into that almost by accident. When they were first married, all they could afford was a "fixer upper". They learned along the way just making the first house a nice place to live. They sold it, used the profit they made to get into a better house, did the same thing. After 4 or 5 really good flips, theyre now living in a beautiful house that they own free and clear.
If you live in the house, you get the lower mortgage rates. And if you stay two years, the profits are tax free. Moving every two years is a pain, but quicker than you realize, it can be a big boost in your net worth.

[Locutus]

How was the financing, if any, handled when you had your partners?  I'm assuming that all of your names were on the deed and on the mortgage?

I'll be back later.  I intend to follow this thread as I've always been fascinated with this topic.  I hope others will share any experiences they've had.

[Gryphon]

It depends. Sometimes, we've formed LLCs that we all owned a certain stake in, and then the house was titled to the company. (I dont pretend to understand all the legal mumbo jumbo and have only a basic understanding of all the financial stuff). In some smaller flips, where there were only two or three partners, we just titled it in all of our names and got the financing much the way an unmarried couple might buy a home together. One job, the house itself was titled to and financed by one person, and the other person financed the renovation out of pocket. (Takes trust and a good contract)

[Cookie Parker]

Isn't this a scary time to be house flipping?  Aren't we on a bubble?  I expect after the elections that the bottom will fall out....anyone else?

[Gryphon]

Isn't this a scary time to be house flipping?  Aren't we on a bubble?  I expect after the elections that the bottom will fall out....anyone else?

I think it depends on the market Cookie. Certainly in the markets that saw ridiculous price increases over the past five years, its a big fear that the bubble is burst and that prices are actually dropping. In markets that were relatively stable during those years, I think they are able to "ride it out" a lot better. Some southeastern and midwestern markets are still UNDERvalued, and since interest rates are still relatively low, theres still money to be made out there.

[Sunny]

Can I talk you into coming to Florida to help me pick one out?     Just kidding.

Although I do think that partnering with someone who has done this before on the first two or three you attempt may be  a good idea.  Picking the right property is critical when doing something like this, especially the first time.

Absolutely! I mean, if you dont make that first bit of money, you cant go on to make the second.
One alternative is the live-in and flip. A couple Im friends with got into that almost by accident. When they were first married, all they could afford was a "fixer upper". They learned along the way just making the first house a nice place to live. They sold it, used the profit they made to get into a better house, did the same thing. After 4 or 5 really good flips, theyre now living in a beautiful house that they own free and clear.
If you live in the house, you get the lower mortgage rates. And if you stay two years, the profits are tax free. Moving every two years is a pain, but quicker than you realize, it can be a big boost in your net worth.

That's pretty much our unintentional plan...*fingers crossed that our house sells quickly* Our current home has almost doubled in assessed value -- and that was before we made as many cosmetic & structural improvements that we have. So, we hope to walk away with a pretty chunk in our pocket to invest into the 'diamond in the rough' we are in the process of purchasing. And we avoided the captiol gains predictament since we lived in the home for 2 years.

I looked at your list of suggestions on flipping & we've pretty much followed it to a 't'...we're buying the worst house in the nicest neighborhood & best school district. Only downer is the taxes, but it'll be worth it! The house just hasn't had any love in 30 years, but it's a very solid home.

These threads are so informative & reinforcing! Thanks!

[Gryphon]

No problem! I think you've made a good investment with the new house. Its a "classic" traditional style that never fades from fashion. Once you put your touch on it and update the "important" rooms, Im sure you'll make a chunk on it as well. (And the yard and deck are awesome! Any buyer would be in love with them!)

Its been my unintentional plan, too. When I first came to SC, I bought a house that had a fire in the kitchen, which gutted that room and smoked out the rest of the house, but there was minimal structural damage, etc. At the time, I didnt know the area well enough to know much, but I thought it was in a cute neighborhood and would be a good investment. I planned to make it MY home. But, by the time I bought it and got all the work done (ended up needing to be completely rewired...there was some mold damage that was uncovered, etc.) I couldnt afford it anymore! So I had to sell it, and turns out it was in a great school district (hadnt occurred to me, since I didnt have kids) and a sought after area, so I made a pretty good amount of money--not huge, but enough for a downpayment on another place--the company I was working for at the time developed a condo building, and I bought one of them at auction---thinking I could use the money from the house I had to sell as a downpayment and have a cool place for not much more than I was paying in rent. Well...by the time the building was almost finished, people were reselling the condos they bought at auction for 30 and 40 thousand more than they got them for. So I thought, what the heck, Ill put mine on the market and see what it does. I ended up making another chunk off of that, and since I resold it before the building was ever finished, I never even really put a dime into it! Easiest money I ever made in my life...
Before those, Id never even really heard of house flipping, so I just fell upon it. Its not something that I ever intend to make a career out of...I just jump into opportunities when they present themselves. I've made a good bit of money on doing them and if I had more money to be 100 percent investor in some of them, I could have gotten rich by now! oh well, I treat it as found money when I make it.

[Gryphon]

House Flipping Tip I learned today...

Make PERSONALLY sure that your general contractor has secured all proper permits. Dont rely on his reputation, because even the most fastidious may "overlook" this minor detail. 

Dont ask how I learned this....

[Sunny]

Uh oh.... Doesn't sound good.

Even as homeowners, we ran into this very issue earlier in the year. Had to go through a long & tedious process to cover somebody else's mistake.

[Gryphon]

I dont think it will slow things down more than a day or two...its just an aggravation at this point.
My only concern is that if they havent looked over the plans, they may find fault with things on them...and now those things are already built.

[Sunny]

That's good to hear re: the minimal inconvenience...still a bummer when those things happen.