The first thing they’re not telling you is that flipping homes is not for everyone. Nearly all of these television shows have a neat format and formula that works out with a nice profit and a happy ending every time. Unfortunately, that’s not always the result in real life.
Don’t think of this as easy money. Think of it as work! Flipping homes is a lot of work. The pros on TV make it look easy. It isn’t.
You need to start with a fair amount of knowledge about how homes are structured and what various repairs cost. It’s impossible to determine your profit potential if you don’t know what it will cost to make the repairs and do the updates needed to make the home attractive to a buyer.
Then you need the money. If you can buy a home that “needs some TLC” for cash, that’s great. Most folks must rely on financing. Before assuming you won’t have a problem getting a loan because you have great credit, call a few lenders. Some have restrictions on making loans for properties that need repairs. So, make sure you can secure financing for the type of property you’re looking for. Don’t wait until you’ve found the right property before you do this. In today’s competitive market, you need your financing plans in place prior to making an offer so you can move quickly.
Which brings us to the next challenge. You’re not the only one watching the “fix and flip” shows and imaging the fortune you could be making. You’ll be competing with a lot of other buyers with similar plans. The competition in some markets (including the Wilmington, NC area) can push the selling prices to a point where it’s difficult to turn a profit on a flip.
The next thing to consider is an honest assessment of your talents and skills. Are you handy? Do you have a good eye for design? Your profit margins will be higher if you have the know-how and the time to do a lot of the work yourself. That doesn’t mean you can’t be successful by subcontracting the work out, but it will mean a smaller profit.
When running your numbers, don’t forget the cost of your borrowed money (interest and closing costs), real estate commissions (if using a listing agent to sell the property after renovations), and other holding costs such as taxes and insurance.
Finally, have you ever noticed the “flipping gurus” never get a home inspection before making the purchase? Then, in the middle of renovations, some unexpected structural problem ALWAYS pops up? Don’t let that be you. Get a home inspection before you purchase. They run $350-$600 and are worth every penny.
It may sound as if I’m suggesting it’s unrealistic to buy and flip properties. I am not. There are a good number of people who make money doing it. What I am saying is it isn’t as easy as the TV shows make it look and it is critical that you prepare yourself properly by learning the market and knowing what it cost, both in materials and labor, to make the repairs needed.