House flipping is a term used mostly to describe buying and selling a house in the same calendar year. It usually involves the renovation of the house with the sole purpose of increasing its sales value. On TV, house flipping appears easy – you purchase a house, upgrade it, and sell it at a higher price. In real life, this may not be the case, as it requires knowledge, experience, foresight and patience.
Here are some tips you should keep in mind:
Do the math–In order to calculate your potential profits, you need to consider the following:
- The cost of buying the house.
- The cost of renovation, including unforeseen expenses (e.g., discovering that the house’s plumbing system is defective and requires replacing). If you are working with a reliable and experienced contractor, they may help you with estimating and budgeting for these unforeseen expenses.
- Relevant taxes (e.g., purchase taxes and capital gains taxes when selling it). Also consider insurance, utilities and maintenance on the house during the period you own it.
- The cost of borrowing money and associated taxes. Note also that in some cases, the interest on borrowed money is tax deductible, but it is not 100% deductible.
- The costs of selling it – associated costs such as advertising, agency fees or your own time and travel costs if you are showing it to potential buyers yourself.
- The margin for risk for cases such as when it will take longer to sell or if it is going to be sold at a lower price than planned.
- Likely sales price.
To calculate your profit, you need to deduct the purchase price and all expenses. You are now in a better position to evaluate the potential of your house flipping.
The market– As with any other property investment, it is important to familiarize yourself with the property’s market. How popular is the area? Is the area an old one that turned popular? Is there a local municipal-area-revamping plan? Are there good schools around that will attract families? Is the area attractive for students? What are the going rental rates in the area? What attractions are near the neighborhood?
Make sure that you know well the ins and outs and the potential of the area. This will help you when calculating potential profits, and it might help you decide on the optimal timing for selling the property.You might realize that it is better to hold on to the property for a year or two until the area becomes more attractive, or to quickly renovate and sell it if the area is already very attractive.
Think about the buyer or the person who is going to live in the property– While renovating, think about the person who is going to live in the property once you sell it. For example, if the area is relevant to families, then renovate it with their needs in mind (a big family area, two bathrooms, a comfortable kitchen and so forth). If you are renovating with an eye on the potential dweller in mind, the chances are higher that you will be able to sell it faster and at a more desirable price to a new buyer.
If you are looking for another way to take part in house flipping, you may consider investing through iintoo. iintoo helps with funding property flipping on a larger scale. Some of our investments involve purchasing, adding value and selling of large residential projects, usually multi-family ones. As always, we scrutinize the deal before we partner with the entrepreneur and raise the money only when we believe that the potential for investment is good. Investing through iintoo allows you to avoid dealing with the many facets (and possible pitfalls) of property investment alone.