As the Real Estate market continues on its upward trend, many interested investors are looking at the “Home Flipping” mold of Real Estate investment. As prices rise and inventory levels for Bank Owned homes rise with them, the opportunities for a fast and healthy ROI are certainly existent in today’s market. However, low prices on large homes don’t always lead to great returns. If interested in flipping a few factors must always come into play to protect yourself and your investment.
Comp it out!
A high grossing flip simply is not possible without high sales price comparable homes in the exact vicinity. Be sure to properly “comp out” your neighboring homes. Regardless of how much money you pour into a home flip, it’s unlikely it will sell for much more then the highest previous sales in the area. Be sure to properly factor a realistic sales price for the specific home before you even start a renovation budget. Your budget must be set based on comparable sales, not on what’s needed in the home you have your flipping eyes on.
Reputable… Contractor – find one!
While all investors worth their salt will properly budget out rehab costs, no budget is safe without a reputable contractor on your side. Be sure that you have a strong understanding of build costs, what will be done to the house, and how long it should take. Jumping the gun without a true idea of fair pricing and timelines can and will put you upside down before you can say underwater. Hold costs are a large and important factor in any flip. Working with a contractor who will “get to it when he gets to it” will put stress on your budget and your mind. Be sure to find a reputable source that understands your strategy, budget and timeline.
Death and… Closing Costs
Two things are certain some say.. Closing costs are a part of all and any Real Estate transaction and can simply not be ignored. As these costs can range as high as 8-9% we need to be certain that these upcoming charges are factored into all decisions made prior and during the flipping process. A 10% return in 60 days is great, until you pay 9% of it to the closing of the transaction. If uncertain how to obtain a strong estimate of true net dollar on the future sale, request a pre-HUD based on estimated values prior to writing that check. Be certain the estimates are obtainable; and most of all realistic.
While Real Estate flipping can be fun, it’s also a very dangerous and risky investment and certainly not for the faint of heart. Whether you go into it alone, or with a certified team, be sure to always prep before you buy. The Due Diligence now can save tens of thousands in the future.