House flipping investments are on the rise as more investors seek to make a profit. The idea of simply buying a house, making a few improvements, and putting it back in the market at a higher price makes it attractive. There are even so many TV shows that make it look so easy. But is it?
Just like any business worth considering, house flipping isn’t all about making quick and easy money. Before you get into the business, you need to know it also involves financial risk. You need to prepare for underlying issues, some financial issues, or delays. You can lose a significant amount of money if you don’t understand the process.
However, you can mitigate the risk with a few steps. This article talks about three basic tips to make sure your house flipping investment doesn’t flop.
1. Find the Right House
If you’re getting your feet wet in house flipping, you ought to know that not every property is suitable for flipping. Just because the house is selling at a mouthwatering deal doesn’t mean that you’ll make a good fortune from it. Prudent investors are always careful about the houses they flip.
Some of the factors to consider include:
- Location. This is one of the most significant factors when purchasing a property. You need to find a house located in a desirable neighborhood. Nobody wants to buy a house within an area with high crime rates, far from hospitals or schools and is surrounded by bad infrastructure. Make sure it fits your budget and is suitable for your investment strategy.
- Market Value. To buy a house for flipping, you need to find one that’s below market value. Finding a distress sale will allow you to buy the house at a price within your budget, renovate it, and sell it for a profit. As a new house flipper, never buy a house you haven’t seen in person. This can be a grave mistake because online photos won’t show you the worst parts.
- Condition. Nasty surprises during home renovations can cost you a lot. Some underlying issues, such as cracked foundations and structural issues, can be catastrophic. You want to buy a house that only requires affordable and minor repairs. Stay away from houses that need major repairs, such as entire roofing replacement.
Also, don’t over-value the home by spending too much on renovations. Too much investment won’t assure you of a significant return. If there’s too much rubbish on the property, you can click this link for same-day rubbish removal in Melbourne.
2. Hire A Professional to Inspect the Property
If you’re not experienced in the property and construction business, you might be susceptible to missing major issues in a house. You might not be able to tell whether the electrical system is outdated or the house needs a new roof. This can ruin your entire investment because if you miss these details, you’ll have to make expensive repairs.
Avoid such damages by hiring a professional to inspect the property. The cost of hiring one might seem high but it’s nothing compared to replacing an electrical system. This will be crucial in developing a detailed and precise budget before investing. You’ll be able to approximate how much money you’ll need to complete the project and make your profit.
3. Have Plenty of Cash
House flipping is a risky business that you don’t want to get into without ample financing. It’s easy to get into bad debt. Some new investors make the mistake of buying a house without a considerable down payment, then pay for its renovations and improvements using credit cards. This can go wrong if the house doesn’t sell as quickly as expected.
Make sure you have plenty of cash on your hands. Here’s why:
- No interest. If you borrow money to flip houses, you’ll be compelled to pay interest for months. This will make you raise the house’s price so that you can break even. Loans for house flipping also tend to have higher interest rates compared to other loans.
- No rush to make profits. Borrowing money to flip a house will make you sell the house in distress to pay off the loan. If you don’t find a buyer soon enough, you’ll have to slash your price and cut your profits. However, when you finance it yourself, you can wait out on a slow market because you don’t have any interest rates piling.
- No debt to hold you back. Using debts to finance any investment increases the chances of losing your money. What happens if everything doesn’t go according to plan?
Financing investment in cash significantly reduces financial risk.
Bottom Line
House flipping isn’t as easy as they make it look on TV. You need to be cautious with the investment to make sure you don’t make losses. You need to find the right house by considering its location, condition, and market value. Hire a professional property inspector to find faults that you might miss. If you can, have plenty of cash to finance the entire project.
