Too many investors buy and sell real estate at inappropriate times and for unfavorable prices based on intuition, unrealistic investment strategies, or poor investment advice. Here is some investment advice for first time house flippers from Pri.
Even in today’s economy, there are great fortunes to be made through real estate investments but also fortunes can also be lost. The investment deal that doesn’t turn out the way you planned; after all of the work, sweat and tears can be a nightmare. Consider the following house flipping investment advice as you plan your own strategy:
Ensure that you have correct and updated information regarding the property. Don’t rely on the listings or the internet alone. Google maps street view can give you an overview of the parcel and the surrounding area but the images can be 12 months old. Whenever possible visit the property in person. It may not be in the same condition as described in the listing. The best investment advice is to check the public records or hire a researcher or title company to search for any encumbrances. A long lost heir showing up in the middle of renovations can flop your flip.
Examine the property to ensure that it will meet your anticipated plans. If you plan to sell it for a 30% profit, make sure that the property has the potential to pull it off. Expect to make small repairs or upgrades but for your first few flips stay away from those that require extensive work. For the inexperienced investor, it can be difficult to gauge the resale value of those extensive projects. The home improvement shows tout that a new marble bathroom can increase resale value by 15K but in reality, it may only add 3K.
If you obtain a loan for the property, ensure that the terms will be manageable for at least a year. Although the goal is to buy, fix, and sell quickly, the reality is that you have no idea how long you may have the hold the property. As with any investment, there is a risk but every risk should be calculated and acceptable. The best investment advice for new flippers is not to assume more debt than you can afford to manage on your own if the property doesn’t sell right away or if you have to sell it for less than you hoped.
No matter how much work you do on a house it will be nearly impossible to sell it for 250K when no other house in a 3-mile radius has sold for more than 175K Although there is still good money to be made flipping houses, you want to manage your risk with realistic outcomes.