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 than this.

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 case.

(And remember that if there is any market uncertainty or if prices are falling, it becomes doubly important to get that house sold fast.)

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