For years, flipping a house to make a profit has been promoted as a great way to earn a ton of money in a short amount of time. There are a plethora of reality TV shows centered on flipping houses and even real estate agents pushing this narrative. In turn, it seems that more and more people want to be a part of the home flipping business. However, flipping a home is much more complicated than those reality tv shows make it seem. So, as a beginner to flipping houses, you should understand a few things before investing too much time and money into these projects.
The Initial Hurdles
Have you ever heard the phrase, “Flip a Home using none of your money“? This is usually the marketing tactic used by those selling you home-flipping programs or even banks themselves. The reality is that you will be using your own money, regardless of if it’s a loan. Flipping a home takes not just the initial investment but other requirements as well. First, you need to make sure you have an excellent credit score to even qualify for a loan. Then you will be responsible for paying back that loan along with property taxes, insurance, and real estate agent fees until the home is actually sold if it ever is. Therefore, it is paramount that these hurdles are ones that you can easily cross over rather than fighting yourself through them.
When it comes to flipping a home, the condition of the newly renovated home is not enough to sell it. You also need to think about the location. A nice home within a bad location will simply leave you with a pretty home. On the other hand, spending too much on a home can lead to out-pricing yourself from that neighborhood where people simply can’t afford to purchase it.
Utilize the 70% Rule
Perhaps the most important rule to follow is the 70% rule. This rule allows you to formulate a plan regarding how much you can actually afford to lose on a deal. The 70% rule essentially states that a home flipper should never pay more than 70% of the after repair value subtracting the amount or value of the repair cost needed.
There’s no doubt about it; flipping a home for profit is a difficult yet rewarding thing to pursue. However, success is not guaranteed. Utilize the information above to make sure that you have the right knowledge and tools to succeed in this type of venture.