House flipping has become one of the most common “get rich quick” ideas in use today. The difference between this one and previously hyped schemes is… this one really works.
More and more, people are finding that, even with the decreasing real estate rates hitting some markets, it is still a reasonable assumption that buying a house at a low cost and renovating it can bring in a considerable amount of cash.
Takeaways
- … the point of “house flipping” it to renovate and sell the home as quickly as possible.
- …. a backup option is to rent the house out.
- Rent can usually be about twice the mortgage rate…
How it works is, an investor takes out a small loan, usually substantially lower than the loan they took out for the house that they currently live in, and purchases an aesthetically undesirable home. Mind you, the home must be structurally sound, or the costs of renovating may make the process not worth the trouble, or may even make it unprofitable.
Look for cosmetic defects that are relatively inexpensive to correct. For example, new paint, new carpet, new light fixtures, and some heavy duty cleaning and landscaping will usually do the trick.
Now, the point of “house flipping” it to renovate and sell the home as quickly as possible. Otherwise, one’s profits will start to take a hit. What makes this process a little dangerous is the fact that so many people will take on the responsibility of renovating these older homes and find out that the costs are much higher than what was first anticipated.
This can be due to the lack of appraisals that were done before the purchase, or even from complications that tend to form along the way (think along the lines of the septic tank backing up). The best route is to plan on having about twice as much available cash for renovations as what you originally estimate will be needed. You can be almost certain that you will find a good use for it rather quickly.
Must Read:
- Real Estate Investing 101
- Should You Consider Investing in Real Estate?
- Make Your House Picture Perfect for a Real Estate Showing in 40 Minutes (Or Less!)
- Selling Your Home Without a Realtor has Benefits If You’re Up to the Challenge
- Ready to List Your Home for Sale? Ten Tips to Make it More Marketable and Get a Quick Sale!
If the house that is being flipped is not in a hot real estate area, a backup option is to rent the house out. Rent can usually be about twice the mortgage rate, so not only will you be able to make the payments, but you will also have the cash to set aside for even more renovations if you like.
The only downside is that it will take years of rental income before you can expect to start making any profits after being reimbursed for your original house restoration costs. This can cause a tremendous financial setback, especially if you were counting on that big profit from selling the house immediately.
Whether or not you decide to venture into this exciting “hobby” is up to you. The returns can be excellent. However, it would be wise to start with an extremely small home and use as little cash as possible for renovations.
Start by purchasing less expensive materials for the job, such as linoleum instead of the preferable tile. Expect to acquire more of a learning experience than an enormous profit on your first project, and this will ensure that you can make house flipping a rewarding means of improving your cash flow in the future.
