Flipping homes 101
Flipping homes 101
Objects of value can come in many forms. Gold, diamonds and all the things which sparkle are obviously among these items. But before they are polished into shiny materials of desire and value, they are quite dull and ordinary in appearance. When they are plucked from the ground, precious metals and stones are very underwhelming.
In the right hands however, an unattractive rock can be cut and polished into something worth a fortune.
Property can be viewed in a similar way, and I for one have had some experience in the power and profit of transforming a house or (flipping houses).
The fact is you can make a great deal of money and a living from renovating and selling for a profit. The key to achieving this goal can be learned by educating yourself with the information and steps I will set out below, as well as from people you may know who have gone through the process, made the mistakes to pass on as lessons learned.
But if you are like how I was, with only a basic understanding and theory of how to make money from property, then I hope this site will be helpful for you to achieve financial freedom from flipping homes.
In the right hands however, an unattractive rock can be cut and polished into something worth a fortune.
Property can be viewed in a similar way, and I for one have had some experience in the power and profit of transforming a house or (flipping houses).
The fact is you can make a great deal of money and a living from renovating and selling for a profit. The key to achieving this goal can be learned by educating yourself with the information and steps I will set out below, as well as from people you may know who have gone through the process, made the mistakes to pass on as lessons learned.
But if you are like how I was, with only a basic understanding and theory of how to make money from property, then I hope this site will be helpful for you to achieve financial freedom from flipping homes.
The Book on Flipping Houses
STEPS FOR A SUCCESSFUL HOUSE FLIP
For those of you who need a mortgage and have a 10% deposit or more, you will be relieved to hear that the banks will on the most part will be extremely helpful. There help is of course self serving. They will ultimately make money from you when you take out the loan. You must ensure however that the property you wish to buy is mortgageable. Brick built homes are the the best and most solid of investments, so look for property with a solid shell and you won't be far wrong.
When trying to calculate your borrowing, you must allow for any renovation costs that will be involved. Ideally you should use the banks money to pay for the house flip. You may have to lay down a slightly bigger deposit, but the point of flipping houses, especially for me, is leveraging the money from a mortgage to make money.
In simple terms, the bank put up the lion share of the funds for your investment. I will go into more detail of leveraging finance in other articles.
For now let's just keep it simple. The bank pays 90% you pay 10%. You buy the property; you sell the property. You then, after taxes and expenses, keep 100% of the profits.
The money I personally made from flipping houses was more than I could have earned in my day job if I worked for 20 years. It took me two years to achieve this.
So once you have your deposit in place and you have found a bank that will give you a mortgage. Your next step is to find the right property.
- STEP 1 - Finance
For those of you who need a mortgage and have a 10% deposit or more, you will be relieved to hear that the banks will on the most part will be extremely helpful. There help is of course self serving. They will ultimately make money from you when you take out the loan. You must ensure however that the property you wish to buy is mortgageable. Brick built homes are the the best and most solid of investments, so look for property with a solid shell and you won't be far wrong.
When trying to calculate your borrowing, you must allow for any renovation costs that will be involved. Ideally you should use the banks money to pay for the house flip. You may have to lay down a slightly bigger deposit, but the point of flipping houses, especially for me, is leveraging the money from a mortgage to make money.
In simple terms, the bank put up the lion share of the funds for your investment. I will go into more detail of leveraging finance in other articles.
For now let's just keep it simple. The bank pays 90% you pay 10%. You buy the property; you sell the property. You then, after taxes and expenses, keep 100% of the profits.
The money I personally made from flipping houses was more than I could have earned in my day job if I worked for 20 years. It took me two years to achieve this.
So once you have your deposit in place and you have found a bank that will give you a mortgage. Your next step is to find the right property.
- STEP 2 - Finding the right house to flip
- The property will sell easily in a desirable area
- Property values are higher at the top end
- You can buy a wreck in dire need of a house flip, for the price of a top home in a poorer area
- The best schools will be in those neighbourhoods
- Crime rates will be low
- A high proportion of the people living there will be wealthy
No matter what area you choose, the same rule should apply to both: Make sure the place is a wreck!
When I say a wreck, I do not mean a home that is falling to the ground. What I mean is, the home must look rough, but have a sound and solid structure.
You want to then shine the asset just like a diamond is buffed and polished to its full glory. You must look past all of the bad decorative decisions of the previous owners and see what it could become. Do this and you will find flipping homes is right for you!
- STEP 3 - Purchase the house to flip
The sellers of homes that are less than desirable, will be extremely eager to sell their property, thinking a person crazy for looking at it twice. If only they had the foresight to turn it around themselves. They would make a killing. But most property that I look for, are those previously owned by elderly who have not updated there homes since the 70's.
They want to move into their next home that is already done and decorated. They have not the money nor the inclination to update their properties. These are the properties I look for.
The first property I purchased to flip was under priced at £280,000. Properties of the same type in the area were around £320,000. It was priced fairly, and I knew the renovation would cost around 20k. I knew I could flip the property in just over six weeks, and at the selling price of £320,000, I would have made just under 20k in six weeks.
But I was going into this business for profit, and I knew it would be difficult for the seller to sell to anyone. She even told me about all of the problems she was facing trying to get shot of the place.
So instead of offering the asking price of £280,000, which I could have made a decent profit off. I offered £230, 000, an offer I expected to be refused out of hand, to which is was. I then told her I would try and borrow more funds from family, which was true, to make my final offer that I could afford. I phoned the next day and offered £240,000, which was genuinely my final offer. I was chancing my arm for a deal of a lifetime. To my joy, the offer was accepted. I had essentially made 40k equity before I had even pulled up a carpet, and stood to make 80k in six weeks if I could sell at £320,000. I actually made a great deal more than that. But my point for this step is: Negotiate hard!
- STEP 4 - Choosing your team wisley
Everyone needs to start somewhere though, and if you do not have a team just yet, then recommendations from friends, family or through reviews are the best way to find them.
Plan your renovations in great detail, by writing everything down, item by item. Once you have done this, hand the paperwork to your contractor and work oit a price that fits in with your budget. The trick is to keep the budget down, but to also have a product with enough wow factor to sell on completion. Compromises may have to be made regarding what you instruct them to carry out. If you can do any jobs yourself then by all means do it. You'll save a lot of money.
But doing the job yourself can sometimes be counter productive and cost you money. For example, I was no stranger to the art of building, but plumbing, electrics, and many other trades should be left in the hands of the professionals. This is for these reasons:
- They are faster than you. Its their job to be faster.
- Remember you are flipping homes, so it needs to be done fast. Mortgage payments are rolling, and if you are dragging your heels trying to figure out how to do something, then you will bleed profit
- Your finsh and quality will be nowhere near the standard of a decent contractor. So if you find a great team, hold onto them like gold dust.
If you truly feel you can take on a job faster than a contractor, then by all means get involved.
I personally carried out many tasks mainly because I had previous building experience and had the expertise.
- Step 5 - What you can do yourself
They are:
- A screw gun
- A Leatherman multi-tool
- A tape measure
- A decent claw hammer
Obviously the more tools the better, but the four tools mentioned above were used pretty much on a daily basis.
I can personally recommend the ones I used, which are reasonably priced at Amazon. The link for my preferred choices are below.
- Step 6 – Design
It is so easy to get carried away when it comes to buying what you need for flipping a home. I constantly had to remind myself that I am not doing it for my taste necessarily, but for the taste of the buyer. When making design decisions, keep in mind that neutral is best. Think creams, whites or a blank canvas. I believe the lighter the colors the better.
When your shopping for bathrooms, kitchens and tiles. Make sure you choose option that are cheap but are also simple and clean cut. NO fancy detailing should be considered as your choice may alienate your buyer. You can always splash out on tiles and worktops, but again keep it simple. Ask the salesman what the most popular items are and go with that. It’s probably popular for a reason.
The same thing goes for flooring. Keep it nice and simple with dark cream colors if you go for carpet.
I personally went for quality laminate flooring downstairs and a cream wool carpet upstairs. Both looked great but I negotiated hard for them to get a fantastic price.
This is another area that can make or break your profits when flipping homes. Shop around for everything. If you need paint look at 3 different shops at least and see if they will help the price for you. Always ask for this. Tell them what you want and when they give you a price, say: “That’s exactly what I want, but it’s just out of my budget. Is there anything you can do with the price?”
Some salesman will then lower it straight away. But for the harder salesman, try telling them that you renovated houses for a living and you will buy much more from them if they look after you.
If that fails, thank them kindly and say you will think about it. Leave them your number and then try and find a more willing negotiator . But nine times out of 10, they will stop you from leaving and give you a discount.
Remember that every penny saved will be a penny profit. So negotiate hard. I can’t say that enough. I may even suggest you place that phrase on your bathroom mirror so you’ll be reminded every day as you brush your teeth to negotiate like a boss.
- Step 7 – Profit
Once your finished, snag the whole property for defects and repair asap. Your contractor should allow in their price for snagging, but if they are on a day rate, come to an agreement on getting the defects done. Again, be as charming as you can but not a push over. It really is a balancing act.
Most defects are small and you will be able to do them your self. No doubt with the tools mentioned above, which prove vital at this stage of flipping homes.
Once the snags are all completed and the house looks clean, tidy with great fixtures and fittings installed to a high standard, it’s time to start thinking about selling.
You must choose your agent with great care. When you have them come over to value your new asset; don’t just go with the one with the best price. Ask them questions about other property they have sold recently. What price did it fetch? How long it was on the market for?
Make it like an interview and remember one thing. They will work for you, so if they can sell you, they may be perfect for selling your property.
As I am writing this the market for real estate is booming and selling a good home in a desirable area should sell like a hot cake. If you have negotiated well on your purchase and saved money on your house flip, then you will almost certainly make a profit well worth all your efforts.
Finally, when the money is in the bank. Roll the profits and repeat.
Sometimes flipping homes gets stressful. It gets hard and you just feel like throwing in the towel.
But if you are serious and want to succeed at it, then hang tough, believe in yourself and trust in the value of all your hard work and research. Their are plenty of sources of information as well as this website. I have included some links to some helpful books above, which go into fine detail of flipping homes. Check them out and gain power from the knowledge they offer.
Good luck and happy flipping
Historical Fiction and other books by John K Martin
Both Available on Amazon
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