Flipping a House? Here Are a Few Things To Keep Top of Mind

All too often, people watch Property Brothers on HGTV and think— “I could do that”. But it’s a lot more work than any TV show makes it out to be. It requires a lot of knowledge and cash up front if you’re going to truly make a profit off the home.

So if you’re thinking about flipping a house, especially as a first-timer, here are a few important points to keep in mind – in fact, top of mind – both before and during this fun, exciting and risky undertaking.

Avoid going into debt for it. Most will advise you to fund the flip with cash, since house flipping can be risky and is, therefore, not worth going into debt for. If you do take on debt, you are paying interest for a period of time, meaning the selling price of the home will have to increase just to cover those extra costs and the market may just not be that cooperative with you when you need it to be. It will also make you more likely to lower the price of the home just to sell it to stop the interest “bleed” — cash flippers can more easily afford to wait out a slow market, all things being equal.

Know the market well. You might think you’re getting a good deal on an affordable house you can fix up, but a real estate agent with expertise in that particular neighbourhood will be able to tell you exactly what other homes in the area are selling for, so you can be sure you are making a wise investment. Otherwise, you could end up investing a lot of money to upgrade a home that won’t sell just based on a feeling or your gut instinct.

Stick to your budget. You should have your budget in place before you purchase the home, so you know exactly what you have to work with and where it will be going. You should know how much you have to put toward buying the home, making any repairs and finishing all renovations…and stick to it.

Renovate wisely. While it’s tempting to completely renovate the kitchen, the numbers on kitchen renovations show that it can be a money loser at the end of the day. While many high-end kitchen renovations cost over $40,000, the average recouped value is around 59 percent, meaning it will not net you the profit you are looking for. Smaller fixes like updating old appliances, refinishing cabinets and working on the landscaping and curb appeal will have a higher ROI. You can find various ROI’s on the internet and a realtor can also give you insight on what’s working in a particular local market.

There is no doubt it is an exciting undertaking and can result in a healthy profit, but flipping a house also comes with a number of potential pitfalls and financial disasters. Be smart about it, be disciplined, keep these tips in mind and you’ll give yourself a better chance of success…and as always, a little good luck won’t hurt either!

Sincerely,

Mike McCarthy