This is a guest post by Gary Ashton REALTOR, his website is at nashvillesmls.com.
What Should Investors Know About Flipping Houses?
With interest rates as they are, more and more investors are once again
considering the fix and flip investment strategy. In addition to relatively low
interest rates, the shortage of entry-level housing throughout many areas of the
country is another important factor that has helped to create additional
interest in this type of real estate investing. But even with these highly favorable conditions, it is important for investors
to understand the potential pitfalls of fix and flip investing, and how to avoid
them.
Location Still Matters
Location, location, location may be an old saying, but it still holds true in
the world of real estate investing. Investors who actively
search out areas and neighborhoods that offer both available homes to flip
and a ready market of buyers for them once they are renovated will enjoy a
better chance of success and a higher profit margin than less active
areas.
Buying Low is Still the Key to Flipping Success
Protecting the profit margin remains the key to a successful house flip, and
buying low remains the most important factor of this strategy. Investors who pay
too high a purchase price for a home will likely not be able to regain lost
margins after renovating and selling. Buying only well-priced homes that allow
for a healthy profit margin are far more likely to end up being a truly
successful investment.
Keeping Costs Down is More Important Than Ever
Even though the overall profit margins are rising for successful home
flipping investors, it is important to remember that the costs of building
materials, labor, and other necessary products and services are also increasing.
To avoid being damaged by these rising costs, it is more
important than ever that investors develop a detailed renovation budget for each
investment property and work within those boundaries.
Remember to Renovate to Appeal to the Local Market
Investors who are relatively new to the business may allow their personal
tastes and opinions to influence the renovation plan for the homes they invest
in.
When this happens, the finished home may no longer appeal to local buyers. A good example of this is
when an investor decides to eliminate a small third bedroom and use the space
for a larger closet or bathroom, instead. If local buyers are most interested in
purchasing a three bedroom home, this renovation mistake drastically reduces the
number of buyers who may want to purchase the home.
To avoid making this mistake, investors must take the time to thoroughly
research the area where each investment home is located and the most likely
buyers for homes in that area and then renovate with this buyer pool in
mind.
Remember, too, that the renovated home should be a good fit
for the neighborhood where it is located. Spending too much for premium features
will not help you get a higher sales or rental price than the area can
support.
An Investor is Only as Good as the Team They Work With
Working with the wrong people is a costly mistake for any investor and even
more so for the fix and flip investor who is likely working within both a tight
budget and a tight timeline. The most successful house flipping investors will
be the ones who have assembled a dependable team of motivated professionals that
they can rely on throughout each renovation project.
This team should be made up of experienced, professional contractors who are
capable of completing their work within agreed upon timelines and budgetary
limits. In addition to contractors, a successful investor will also partner with
the right lender for their needs and a real estate professional with a
successful history of marketing and selling investment real estate.
Other important members of a successful team may also include an accountant,
real estate attorney, and a home inspector who is capable of helping the
investor with pre-screening prospective investment properties to help choose the
ones with the most potential profit.
Investors who want to assemble the best possible team will need to carefully
screen potential members before inviting them aboard. Ask around, look for
references, and verifiable proof and don’t be afraid to cut poor-performers
loose before they end up ruining your potential for profit.
No matter what the future holds, the real estate investor who is able to
select the right properties and renovate them efficiently is more likely to
remain profitable throughout their career. Whether they make those profits
through flipping ultimately depends on the market and the steps they take to
minimize their risk.
You can check out Gary Ashton at his website at nashvillesmls.com