5 Steps to Flipping
Well, this is one of my favorite topics. I know this better than I know my family probably. This is the reason my wife and I have flipped well over 400 homes from NY to Colorado and down the east coast. When I say flipping, that means rehabbing the home. If we count all deals, we would be over 900. Wow, that is a lot! And took us about 20 years.
Now we are flipping residential developments, with anywhere from 14 lots to 200.
Our very first flip was a small country home in upstate NY which at that time was where we lived. This was a property we picked up from a local bank. I will give you the short story on it. We had an agent that we were working with now for about 6mths looking for properties and she kept asking me to come and look at this property! I kept saying that it’s been on the market for over a year, no thanks!
I thought must be big issues if no one else has bought it.
Oh, how wrong I was lol. (now) Finally, after a couple more months, we went to look at it. First thing I saw was that the block foundation in the front bedroom window, about 20 ft were pushed out. I look at her and said you know my criteria so why would we look at this house. She said you’re creative and it will be cheap. The rest of the house needed very little work, mostly paint and a good cleaning, except for the furnace that was in the basement. She had told me it needed to be replaced and that cost would be around $4500. Ouch!
She would not come down to the basement and in fact, neither would my wife lol. So I knew how to slide the unit inside out so I did and guess what, no cracks! After that I went over to the front wall, you remember the block wall that was pushed out. No lights so I was using a flash light, I’m looking and saying HMMMMMMMMM something is wrong with this picture. I then ran back out side looked again then back down not saying a word to anyone. So fast forward they the bank were asking $35000, I reminded them of the issues big ones with a cost to repair, they had held the property for over a year now and winter was coming soon, offered them $12700 cash, close in 15 days, no questions asked. Shit, they bit hard like a hungry large mouth bass. Ok Ok, you’re thinking what the heck, What I didn’t tell you is the lazy foundation guys didn’t remove the old block after replacing with a new block wall from inside the basement and since no one wanted to go down to the basement, they never know LMAO! And the heating system just needed a good cleaning cost $200.00 LMAO again. Ok, the end is I spent $12700 plus closing (a few hundred) on house, $900 to paint the inside, $300 to clean and $250.00 for the furnace. We sold the house 2 months later, ok you may want to set down at this point…..for $76,000! Yep, that’s true! The cool thing was before we sold we refined the house after repairs and pulled $56000 in cash out of it. TAX-FREE BABY! HOME RUN!
That’s another story.
Ok this is the extreme home run this is not always the case, all the stars had aligned for us.
So here are 5 steps to know when flipping!
1. Do the math
Figure out what you can spend on both the house and the renovation, down to the last dollar, and include how much risk you are prepared to take. Price out the cost of carrying a short-term loan (if you need one), taxes, utilities and maintenance on the home for up to a year. Price out your material costs and labor. Look at comparable sales in the market to see what the likely sale price will be and don’t expect a penny over. Once you have a financial plan in front of you, with a reasonable margin for risk, begin shopping for homes that meet that budget. Don’t let a huge fixer-upper with potentially larger returns muddle your math.
2. Know your market
Is this an already established area with rising prices? Is it a transitional neighborhood with good potential that may not be quite “there” yet? Is this an area with good schools that will attract families? Is this a community popular with retirees? Knowing your market will help you to choose the most desirable home and it should help you know what your profit margin will be. Every neighborhood has a not-to-exceed price. Know what that is. Doing your homework on recent sales and average days on market can give you an idea of how long to hold the property before flipping. Perhaps you want to rent it for a year or two until the neighborhood really takes off, or do a quick renovation because the neighborhood is very competitive.
3. Know your buyer and renovate with that buyer in mind
If this is a neighborhood with good schools, then your buyer is a young family. Older homes may not have the open kitchen/family room that these buyers demand. Spend your money making the family space open and inviting. Make sure there are enough bathrooms for kids and invest in a Jack and Jill vanity in the hallway bath. Finish the basement if possible. Don’t focus too much on the master suite, but make sure mom and dad do have their own bathroom. If this is a retirement area, look for a home with just one main level or a ranch style. If there are stairways, open them up and widen tight spaces. Make sure the home is easily accessible from the street — no big stairways up to the front door. And turn the yard into a patio for a maintenance-free outdoors.
4. Educate your buyer
You put in the work — make a list. Disclose every system that was replaced, from HVAC to electrical and any structural problems that were repaired. Take a snapshot of a new roof. Note which windows are new. List new appliances and fixtures and present a binder with all instruction booklets and warranties. Display instructions next to any new “smart home” feature, like security, sound system, and lighting controls. Let buyers know every detail of how this charming historic home is updated to today’s standards.
5. Don’t overprice
It’s tempting to look at your renovation, love what you’ve done, factor in all the sweat equity and overvalue the home. Remember, your buyer likely didn’t see it when you started. They didn’t know the kitchen was disgusting and the basement stunk. They have no idea how much stress you went through. They see the finished product only, and they have been shopping the market, touring the comparable homes. Every neighborhood has a general price point, and you need to stay within it. Underpricing slightly could result in multiple offers and a final sale price above asking. Better than having all your hard work sit on the market for months.
If you would like to invest in real estate and not sure what to do,
Thanks for reading!
Syd Chase Sr. (MrNoBull)
Website | www.sydchase.com