It sounds so magical. House Flipping. Its easy! You buy low, don't go overboard on the build and sell high. The market is always strong, TV makes it look seamless and no one is your boss. How could it not look appealing!? It is a daily occurrence that I hear the phrase, "I watch all those shows on HGTV and really want to flip a house!"
Well this is a post about some of the realities of the profession. If you have ever had the desire to flip a house GO FOR IT! But remember, it is not always as happy go lucky as you probably expect. It really is fun, it really can be lucrative and it really can be rewarding. But none of this comes without a ton of hard work, long hours, and most of all MONEY! This shit is expensive!
So for all of you Fixer Upper lovin wannabes out there, here are my top 5 things to remember when considering flipping a house.
5 - Do your homework! - Research research research. Data doesn't lie! Make sure you truly do understand the market in the area you are looking. Some people believe in the idea that there are bad markets. This is true to a degree but my thought is that any market or any location can have a gem. You just need to buy it right and the only way to do that is to know the area and the value of the surrounding homes. Most of all, take your time, your gut is always right. If it doesn't feel right walk away, there is always another property around the corner.
4 - Use a realtor - People ask me why I don't have my real estate license. Honestly, I really should, it would save me thousands of dollars. But in the end I need to be focused on what I'm good at, managing projects. You could compare it to why I don't paint. IT'S JUST NOT WORTH MY TIME! Realtors are educated not only in the process of transacting property, but they know the market. They are out there every day looking at houses and understand what makes your area tick. Ask tons of questions, make them pull countless comps for you, thats their job and any good realtor will love the fact you are doing your research. It makes their job easier if you are better informed.
3 - Add 20% on the top - The two main factors you will deal with is time and money. My best advice is no matter how good you think you are at estimating, add 20% on top of any number you come up with for the renovation. As far as time, you should do the exact same thing. Expect the unexpected and set yourself up for success. If you get to the end of a project and don't have the money to finish because you underestimated it will be VERY stressful.
2 - Leave some running capital in the bank - I call this Oh-Shit money. Things go wrong and there is nothing you can do about it other than be prepared. Since you already over estimated by 20% that should cover any construction blunders. But what if you get it done on your timeline but then it sits. What if the market softens and you have to carry the project for an extra 3 months? Make sure you leave some cash on hand to cover your carrying costs for at least 3 extra months and if you can, make it 6. You never know...
1 - Pay your contractors! - It sounds simple but it is amazing how many people loose sight of this topic. When I started this business I made a commitment to pay any contractor the day they ask for a check. My checkbook is in my truck at all times and I make sure to have enough cash in the bank to always cover any contractor currently on the job or in the que to start. It is amazing how much more responsive contractors are when they know you will have a deposit check the day they start and even more importantly the final check when they finish up. I will leverage my credit and leave myself cash poor to make sure the people who work hard for me get paid first.
Now get out there and find that gem!