How to Flip a House - 6 Steps to Successful Flipping
Today I want to talk to you a little bit about how to flip a house.
This is a huge discussion that could span days or weeks, and some people do spend days or weeks talking about this subject.
But I want to break it down.
Flipping a house has a couple of different steps and elements that I'm going to walk you through next.
Step 1. The first step is finding a piece of property, and finding a property is will probably be your most difficult and also probably your most time-consuming task. The key in finding a property is to find a good deal. There's an old saying that says, just because it's a deal doesn't mean it's a good deal for you. Just because something comes available doesn't mean you're the best person to be purchasing that property even if there is profit. So you want to be selective of the things you're purchasing based on your education, your experience, your knowledge and everything else.
Step 2. In this phase, you're going to need to do is evaluate that property. Just because you have a property under contract in the process of flipping this home doesn't mean you're done. When evaluating the property there's two things you're going to look at. The first thing you're going to look at is the property condition. You're going to want to get your home inspector over there, your contractors over there. You're going to want to see if there's any major problems with the property. You're going to want to make sure that the property is in the condition that you're thinking it should be in. You're going to want to get hard bids so you know what the repairs are really going to cost on this property to make sure you don't go over-budget, to make sure you don't run into any type of trouble as things go along. So you want a real evaluation.
Id like to remind you that it's important here not to fall in love with the property. Just because it may look like it's a good deal, just because it's a property you'd really like to own, you have to remain objective throughout the whole affair.
The second thing that you'll need to evaluate is the price. Are you really buying this property right? I suggest that you do several things. One is look for comparable property. You can look for active and sold comparables. These should be in the same neighborhood. When you say comparables, what we mean is houses that have sold and houses that are currently on the market. And you want to analyze those, and you're looking for the lowest, so you're going to start with the lowest-priced homes, not with the highest homes. Too many people start with the highest price and work their way down, but you have got to start with the lowest, the most inexpensive active homes that are on the market and that are in the neighborhood, and you work your way up until you find one that is similar to yours, and when you do, that's the value of the property. You do the same on the sold comparables, you start with the most least expensive, and you work your way up until you find one that's similar, that's the value of the property.
I can tell you right now that finding the value of a property is the thing that most investors, whether beginning or experienced, make the mistakes on the most, and that is overvaluing the property. So you want to be careful, and that's part of the evaluations phase.
Step 3. Once you're done with the evaluations phase, it's now time to make loan applications to secure your financing. So you're going to want to work with a hard money lender that does fix-and-flip investing who can help you out with getting the right type of a loan. So you want to secure your financing and get all the necessary stuff taken care of. You then close on the loan.
Step 4. The next step is to get the property rehabbed. So you need to get the improvement and fixing work done. Just like we talked about during the evaluations phase, if you've done your job properly, you'd already figured out who's going to do the repairs. I suggest you set up a time schedule so that every single person is going to do their repairs on a predetermined timeframe. Not to forget, that schedule and the scope of work need to be signed. Don't leave it to the contractor to type up the bid - type up the bid yourself. Type up everything that the contractor is going to do. You can even put SKU numbers in there for the type of toilet, fittings, fixtures and materials that you want them to buy (you can go to Home Depot to get the required information). You can take pictures of the different types of things you want - keep those on file or put those as attachments to what you want have done to the property. The easier you can make it for these contractors and handymen to know exactly what you want done the better.
The other thing that I like to do is put a bonus and I like to put a deduction if they don't get it done on time. So basically I put a bonus if they get it done ahead of schedule and I put a deduction if they get it done behind schedule.
On completing the repairs - you should have the repairs done anywhere from 15 to 45 days. If there are not very many repairs, 15 days, at max, 45 days. This is even if you're doing the work yourself. Time is money at this point, and if you're spending too much time getting this property done you're going to find yourself in a bad situation.
Step 5. It's now time for you to reevaluate the property again. Once you get the repairs done it's time to reevaluate the property for what the value of the property is. And it may have changed, so be open to that. I can assure you that there may be times when the price, instead of going up, has gone down. So you want to reevaluate the value on that because when you come out with property you want what's called precision pricing. And that's the thing, you evaluate it again, and then you get this property listed.
Step 6. In this step, you list the property, and I recommend you list with a real estate agent, I really do, as they will be able to get maximum exposure for your listing. I also recommend that you list the property for what you think it is going to sell for. Many people make the mistake of trying to sell the property for ten or twenty thousand or thirty thousand dollars more than what it's really going to sell for, thinking people are going to give them an offer and they'll negotiate from there. The old saying that if I can start high and always come down is complete bologna, because what happens is you'll end up always chasing your tail. So you always want to start for what it's going to sell for, start there, and then get an offer fast.
And then that's basically going to wrap you up. Once you get an offer, you're going to put that offer towards closing, get the property closed and get your payday.
So this is basically a very short overview to talk about the steps in fixing up and flipping a property for profit.