Six Tips for Flipping a House
By Steve Gillman - 2005 - 2012
The most important tips for flipping a house are not about
what to fix or change in the house. They are the tips about time
and money. More specifically, they are about how time can cost
money, and about how to determine how much to pay in the first
place. Read numbers one and two carefully, then, to make sure
that you make a profit on that fixer-upper.
Note: A quick update for 2012... Prices are finally
starting to rise in many parts of the country according to the
latest data. That makes a quick sale less of a concern than it
was previously, since you don;t have to try to sell before further
declines in value happen. Of course, you still have holding costs
to consider, so unless prices are really rising fast, speed is
still likely to increase your final net profit.
1. Know the Numbers
What will the house sell for when it is done? Having a clear
idea of the ARV (after repair value) is the only way to safely
make an offer on a house. You can't guess that you'll sell a
home for $20,000 more than what you put into it. The market determines
the price, not your desire. Get advice if necessary, and then
subtract from the ARV all possible costs you will have, including
price, buying costs, repair costs, holding costs, and selling
costs. Then from this, subtract the profit you want. Now you
have the highest price you should pay. Make the first offer lower
2. Make a Realistic Schedule
More than one house-flipping project has gone wrong due to
delays. You think you can get the plumber in the house in the
first week, but it takes a month. As a result, you can't close
the walls up, and everything else gets behind schedule. Meanwhile,
as you wait, you spend $2,000 per month on holding costs like
loan payments, utilities, insurance and property taxes. That
starts to eat up you profits. The Cure? Check before you finalize
the offer, to see how long things like windows, plumbing and
dry walling will take.
3. Do Important Things First
I was watching one of those "flip a house" programs
on television the other night, and a young couple was running
$10,000 over budget on their first fixer-upper investment. In
the end, they ran out of money, and put the house on the market
with a crappy-looking yard and stains visible on the front of
the house. These were two things that buyers would see first,
and the impression they make matters. To avoid this, start with
those changes that are most important. That way, if you run out
of money or time, you have already done the things that will
make the home sell.
4. Consider the ROI of Improvements
The return-on-investment (ROI) for each possible improvement
should determine what you do when you flip a house. You have
to guess a bit here, but the principle is that you do only those
things which increase the value of the home substantially more
than what they cost. High-ROI improvements will vary by area
and type of home, but typically include painting, carpeting,
and landscaping. On a small home, you can have some new flowers
and bushes, new paint, and all new carpeting for less than $7,000,
and possibly raise the value of the home by $15,000.
Note: A good cleaning may make a carpet look new. For
tips on Removing
Carpet Stains, and the best ways to clean carpet, see HowToRemoveCarpetStains.com.
5. Know Your Market
If the home is a single level ranch in a neighborhood full
of retired couples, don't try to sell it to young professionals.
You should know what kinds of buyers are likely to want the home
(and neighborhood) before you start, and then - after improving
it with those buyers in mind - you should market it accordingly.
Make sure you or your agent identifies and advertises the benefits
that matter to your buyers, whether this includes "close
to stores" or "country views."
6. Price Below Market
Selling fast makes sense, because you not only have those
holding costs, but you may have other projects waiting for that
money. To sell it more quickly, always price it slightly below
market value - and let buyers know that it is a deal. Remember,
if you sell for $3,000 under market, you aren't losing $3,000.
You are possibly saving a couple thousand in the holding costs
you will pay if it takes an extra six weeks to sell at a higher
price. Flipping a house fast also means getting the money into
the next project more quickly. If you buy right, and use the
other tips here, there should be plenty of profit left in any
(And remember that if there is any market uncertainty or if
prices are falling, it becomes doubly important to get that house
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