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4 Rules Of Flipping Houses To Never Forget
So after contemplating which real estate investing strategy to focus on, you have decided to that flipping houses sound more fun and promises quicker profits.
Good for you.
Not that there’s any consensus that agrees one way is better than the other. It’s just that deciding your approach to properties can give you more focus on what skill sets you need and knowledge to get acquainted with.
Flipping houses can help you see profits faster than holding onto a rental property. It could also require much less capital outlay depending on your expertise in making deals.
But do bear in mind that things can move really fast in this market.
You need to be able to think on your feet fast and be up-to-date about latest happenings so that you can smell a good deal brewing around the neighborhood.
It can be a huge mess to take on. Here are 4 rules of flipping that you should always keep in mind when being a player in this game.
1) You only profit when you sell
If you don’t have the skills needed to flip options or engage in sub-sales, then you would have to acquire a house, remodel it and spruce up the curb appeal, and put it on the market for resale.
This can require a considerable amount of capital outlay.
While you could really force appreciation on a house with clever renovation works, remember that increase in property value is just paper gain.
You are not going to book a profit on your accounts until you get the fixer-upper sold. Even then, you are not going to see any money until the proceeds are safely sitting in your bank accounts.
Additionally, the profile of rental properties can be different from fixer-uppers.
This means that if you are unable to identify houses primed for profitable flips, you could potentially invest thousands of dollars on fixes and still end up with a lemon.
With this flippers’ commandment in mind, before you make an offer to buyer a potential flip, you should already be able to identify and visualize the market of buyers who would buy the house from you after you have sprinkled your magic dust on the project.
2) Time will eat away on your profits
For rental properties, this is less of an issue as landlords will be able to manage cash flow with rentals collected.
But the holding costs of hanging onto a house can be quite significant.
You will not be collecting rents to buffer the monthly costs. Yet you will continue to receive bills for utilities, mortgage, maintenance, etc.
Time is of the essence.
Every extra day you remain in possession of the house, the deeper holding costs will dig into your profits.
This means that you have to get construction and remodeling works completed as soon as possible. And even start selling the house before your cosmetic jobs are completed.
3) Don’t fall in love with the house
This is one mistake that countless real estate investors are prone to.
Even experienced players can fall prey to this pitfall.
We see a property and fall in love with the environment, location, ambience, and unique character. We then visualize how much better it would be after our midas touch is put on it. Then put it upon ourselves to pump more money to create the “perfect” home.
Getting emotionally attached to investments is a sure way to failure.
Constantly remind yourself that flipping is about profits. It’s all about the bottom line.
If houses in the neighborhood are going for $200,000 on average, you are pushing yourself against the wall by buying one at $150,000 and spending $50,000 on remodeling it.
In this instance, where is your profit going to come from?
4) Macro over micro factors
You could legitimately use gold plating for the walls and convert an old looking house into a luxury home.
But if the neighborhood is not an area filled with million-dollar houses, the odds of it selling to an actual buyer is as good as zilch.
Never spend too much time and resources fretting over the small details if it means compromising your focus on the big picture.
The market will beat your down into a pulp if you go aggressively against it.
The real estate market is unique in that it allows almost anybody to profit from it because of the abundance of under-valued houses that can be found almost anywhere.
But it takes skills, knowledge, and discipline to get your flips right.
These 4 rules of flipping houses will hopefully provide direction whenever you are in doubt over property investment decisions.