After the vicious shocks, the real estate market has recovered and is undergoing a steady growth. People no longer shy away from exploring lucrative opportunities, yet, before seeing more funds on the bank account, entrepreneurs have to build solid foundations. Flipping houses is not a gamble, but it can be a risky game with many pitfalls. Taking baby steps is the best way to start, while leaps and bounds are the results of investing a great deal of time, energy and money.
No expense is spared
The goal, of course, is to buy the home under the market value, rehabilitate it, and finally sell it for profit. The basic formula is simple as ABC, but carrying it out is certainly not. There is a lot of detail to keep an eye on in each stage: One has to handle liens, tax arrears, sprucing up costs, and marketing. The paperwork alone is enough to give many people headaches. To make sure they do not flip out, but flip the house, investors take on meticulous research and calculations.
The first thing to consider is the operating costs. There are a number of items that fall under this category: Transportation, broker’s commission, construction expenditures, internet access, etc. A house flipper might also tackle title and legal costs, as well as “carry” or “holding” costs. They refer to expenditures tied to the period between making a purchase and selling the property. This takes the form of mortgages, taxes, maintenance, and insurance.
A license to print money
This is all to say that the backbone of the flipping business is the source of funding. Many are those with insufficient resources for purchasing real estate, which is why they turn to other ways of financing their activities. Some of the best options are home equity loans, lines of credit, and small business loans. Just bear in mind that the lending institutions most often require people to come up with down payment or collateral.
The next step is to find appropriate service providers in the vast ecosystem of painters, plumbers, attorneys, electricians, interior designers, construction contractors, and architects. Getting the best possible service without breaking the bank is what gives flippers an edge in the market. The only thing left to do in the preparation phase is to conduct a thorough research of the local market. Online resources are of great help, but so is the good old neighborhood cruising.
At last, before grabbing the keys of the house, a company must first apply for licenses and permits. Depending on the specific country jurisdiction, it is possible that the house flipping business will have to possess a real estate license or be registered as a general contractor. Now, it is important to understand that there are some other business activities that are rooted in the underlying logic and rules of house flipping.
Namely, the market is no stranger to the model of the wholesaling real estate. It involves a much shorter time frame and does not include repairs and remodelling of the property before sealing the deal. The wholesaler does not purchase the property, which means that there is less risk than with traditional property flipping. The spoils, however, are not that opulent and are limited to the difference between the contracted price and the amount of money paid for the real estate.
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Hit a home run
There is no other way to access the odds of running a successful house-flipping business than to get into the facts and figures. Specifically, business owners must work out a game plan that is sound as a dollar. This comes through grasping the expenditures, predicting the profit streams, mastering the legal procedure and following the entrepreneurial instinct. Striking gold may be months down the road, so get your (financial) house in order before giving flipping a try.
About the Author
Derek Lotts is a writer that aspires to get recognition for his writing skills. He has an utterly curious mind and is always on the lookout for fresh and trendy topics. Follow him on twitter.