House flipping is on the rise again, thanks in large part to a more affordable housing market and the popularity of “fixer-upper” home renovation shows on television.
Are you thinking of purchasing an investment property?
If so, you need to know that fixing up a house often isn’t as fun nor as simple as those TV shows make it seem.
Buying an old house and renovating it for a profit is a long-term investment that requires you to hire the right designers, architects, contractors, and landscapers. These houses may be cheap to buy initially, but making them livable again is much more expensive.
One of the most important choices you’ll make when buying a fixer-upper house? The property itself.
So, what separates a good investment from a bad one, and what should you look for when you’re ready to start flipping houses?
Read on to find out.
- Location is Everything
When you’re buying a fixer-upper, it can be so tempting to go for the cheapest property available in the hopes of increasing your overall profit margin.
However, ultra-cheap houses often aren’t in convenient locations, which can easily knock tens of thousands of dollars off your investment before you even pick up a tool.
Make sure your home is close to grocery stores, accessible by public transportation and main roads, and that it’s in a safe, established or an up-and-coming neighborhood.
Remember, if you wouldn’t want to drive half an hour to get to downtown every morning, neither will your home buyers.
- Conduct Thorough Market Research
When you’re renovating houses for sale, you need to become obsessed with learning everything you can about your city/state’s real estate market — and the overall market.
Look at the types of houses that are in demand.
Are buyers interested in ranch-style homes, chalet-style architecture, or ultra-modern design? How much yard space does the average buyer in your area expect?
What neighborhoods are likely to become the next big thing in your town, and which ones are falling in value due to an excess of developments or other issues?
How many bedrooms is the average buyer looking for? What’s the average cost of homes in your neighborhood and city?
Once you find a specific home you’re interested in flipping, conduct research on its history, too. What has the home sold for in the past? What, if any, renovations were done in the past?
Here, we suggest you hire a property inspector/surveyor to give you the lowdown on the bones of the house.
Finally, consider timing. Is it currently a buyer’s market in your city, and are you listing at the right time of year?
- Define a Budget and Set Investment Goals
Before you even start fixing up a house, you need to take a moment to define your specific investment goals.
What is the minimum profit margin you’d be willing to accept? How do you plan to finance the purchase of this home? Will you apply for a home loan or finance it entirely on your own? Even if you do buy the home outright without a loan, how do you plan to pay for renovations?
Know the expected costs and average timelines of the renovations that you plan on conducting, including any materials you’ll need to purchase. Prioritize renovations that truly add to the value of a home, like a new roof or kitchen, over purely aesthetic ones.
Leave plenty of wiggle room ($10,000 or more) for those unexpected renovations and repairs that will undoubtedly crop up.
This will prevent you from going over your budget by an extreme amount that ends up totally negating the investment.
- Hire the Right Team
The real secret when it comes to maximizing your profit on a fixer-upper?
Hiring the right team — and being willing to pay for better services.
Research downtown renovations companies and contractors with experience, licensing, and insurance. Make sure you take a look at their portfolios, reviews, and compare estimates to help you make the best possible choice.
Also, hire an interior designer/decorator to ensure that your home is in line with contemporary trends.
When you’re ready to put your home on the market, also invest in a professional home staging company, a photographer, and cleaning company to make sure your home looks its best.
Finally, especially if it’s your first time selling a fixer-upper, you should consider working with a real estate professional.
Yes, their commission will eat into part of your profits. However, their experience and knowledge of the current local market will likely also allow you to get a higher purchase price than you may have expected.
Plus, you can learn from their advice and sell any future investment properties on your own.
Ready to Begin Fixing up a House for Profit?
Fixing houses for a profit should be seen as a long-term, strategic investment that, as with any investment, carries a good amount of risk.
Never invest more than you can afford to lose, and surround yourself with the right experts throughout the process to maximize your profits.
Research online real estate listings to help you get your property in front of more potential buyers, and even consider virtual tours to attract out-of-state markets.
Need more tips on which home renovations are worth the investment? Want to know what to look for in a great contractor? Ready to familiarize yourself with current interior design trends?
You’re going to need our help to avoid making mistakes especially when it comes to your contractor.
Keep reading our future blog posts to know the red flags to watch out for.