Around the turn of the century, house flipping became a popular fad for people that wanted to make money quickly. Some investors discovered that it could be very lucrative. However, plenty of house flippers lost their entire investment.
If you want to succeed in this business
, you need to know what you are doing. You have to both be informed and be willing to take sensible risks. Here are some tips that every house flipper needs to know.
1. Don’t Insist on Buying Properties With No Money Down
If you watch infomercials on house-flipping, you will notice that many of them emphasize strategies that involve buying properties without any money down. They like to appeal to the greedy parts of our psyche that make us think that we can make money without taking a risk.
The obvious problem with these implied promises is that house flippers are
taking a risk when they purchase property without making a down payment. They are on the hook for a massive debt, which they will still need to pay off if the deal goes south.
Keep in mind that the larger the loan that you take out, the more interest that you will accrue. This means that you will need to sell the property at a higher premium just to break even.
2. Know the Risks Associated With Buying Foreclosed Homes
Far too many get rich quick scammers talk about the benefits of buying foreclosed homes. They state that you can buy foreclosed properties at a steep discount. While this is true, you need to recognize that there are ancillary costs that will be attached to the property:
- You may have to assume responsibility for unpaid debts, such as outstanding property taxes, liens and home equity loans.
- Foreclosed properties tend to be in poor condition, so you will need to pay more to get it fixed up.
You may also have to wait several months for the offer to go through, because every party with a vested interest in it will need to approve the same first.
Buying foreclosed properties can be a good way to go, but you need to know what you are doing. Make sure you know what the debt liabilities are and whether you will assume them.
3. Focus on Choosing Prime Locations Over Distressed Properties
Many people believe that they can make a lot of money by buying distressed properties, fixing them and selling them at a premium. This can be a good way to create a profitable house flipping business, but there are no guarantees.
The problem is that distressed properties are often located in subprime areas. Many other factors influence the value of the property, including:
- Local education systems
- Crime rates
- Employment opportunities in the area
The value of almost any property will increase after you make necessary repairs. However, the value will be capped by these other factors.
You stand to make a lot more money by purchasing homes in an area that is likely to experience an economic boom in the near future. You can still buy distressed properties, but make sure the location is right as well. Companies like Sarasota Beach Homes
can help house flippers choose the right areas before committing to an investment.
4. Get Your Credit Fixed
You will almost certainly have to take out a loan to become a professional house flipper. You will have a hard time qualifying with a bad credit score. If your credit is bad, you will also have to pay higher interest rates, which makes it harder to break even.
Do everything you can to fix your credit score before you start flipping houses.