A recent article in the Canadian publication The Canadian offered investors some tips for house flipping. The basics and tips covered should be part of your everyday strategy if you hope to resell for profit, too. The article by Anthony Seruga and Yolly Bishop points out that many new investors do not understand the basic difference between speculating and flipping. They point out that most amateur real estate professionals who are unsuccessful are speculating. What they're doing is hoping that someone else is willing to pay more for the property they have purchased, even if there is no added value in that property for the buyer. On the other hand, flipping involves something far more conservative. The investor buys a house, knowing that they can improve the value of the property or see a value of the property that others do not see yet. Speculation is a sort of hopeful wish that somehow a property will sell for more. Flipping, on the other hand, is a careful strategy meant to elicit more value from a property. It's an important distinction, and one that many new investors do not focus enough on.
The article also suggests that new real estate investors work with an experienced real estate agent, as a real estate professional is more savvy about current conditions, market trends, and real property values than the beginner investor. The article suggests that an agent is one of the best ways to find a low-cost property with minimal risk.
Of course, even with a good real estate agent, the responsibility for the flip lies with the investor themselves. Whether you are seasoned pro or beginner investor, you have to work on paper to determine your goals for any specific property you are thinking of rehabilitating. You will want to make sure that even after any renovation work, the property will still be able to make a profit in current market conditions. You'll want to ensure that there are sellers interested in the property. If you are selling to another investor, you want when sure that there's enough of a profit margin to interest another investor. Before you buy, you want to make sure that you have an inspector check to make sure that there isn't a major problem with the property that devalues it.
The article points out that beginner investors can look for properties that are advertised with keywords such as “needs work,” “must sell,” “motivated seller,” “foreclosure,” or “vacant.” One thing that the article does not point out, however, is the frequent phrase “as is.” Often, that phrase indicates that a property is being sold with no guarantees whatsoever. In many cases, the phrase indicates a distressed property in need of substantial repair work. While this can be a good bargain, it is important to get an inspector and assessor to look over the property very carefully. In some cases, the property is being sold this way because there are major issues -- such as a buried oil tank or lead pipes -- that are expensive to fix.
Once you have found a home, you will want to get excellent financing. This can be tricky, as the article points out, since many lenders worry about possible real estate scams and about real estate investors who may not know what they're getting into with house flipping. Therefore, some traditional lenders require that investors add a clause to the contract stating that they will not resell the property for a specific number of months. If you will resell the property sooner than that, you will need to add a clause to that effect in the contract, or you will have to seek financing from a private lender, or private investor, who will be willing to offer financing with more flexible terms.
