Are you a flipping genius?
Sunday, December 21, 2008
Tuning in to TV news in recent weeks I am hearing more predictions that some areas have reached the bottom of the real estate market. In other words, housing prices are getting as low as they are going to get. I think this is especially true in towns like Chico where foreclosures were at a minimum.
There are still some distressed properties for sale in Chico. These create excellent opportunities. As confidence in the housing market builds, investors are in line to buy properties. Some will use the homes as rentals. Others will buy in order to rehab the properties, and sell them to make money.
This process has come to be known as “flipping.”
Have you toyed with the idea of flipping a house? Do you have what it takes? Here are 10 questions to ask yourself before you take the plunge.
1. Do you have the vision? When you walk into a house that needs rehab, do you immediately see the possibilities? Would you be able to sit down and make a list of everything that should be done?
2. Do you have a high tolerance for risk? Flipping is very risky business. Money can be made, but money can also be lost. If things go wrong, are you willing and able to rent the property out for one to five years? Can you cut your losses if need be?
3. Can you leverage money to buy the house? Paying loan fees for a long-term loan can wreak havoc on your bottom line. Plus, conventional lenders are not anxious to share your risk. Do you have excellent credit scores? Can you handle interest payments on the cash you borrow?
4. Do you have marketing instincts? Do you possess an innate sense of what the general public wants in a home? Can you set aside your personal design tastes and keep to what will sell the home to the mainstream buyers? When the time comes, can you effectively stage the house?
5. Do you understand the bones of a house? A basic knowledge of construction? The whole house inspection only covers the basics. You need to know if your vision for the home is even possible, and at what cost. If you are not an expert, hire one before you close the purchase! Hidden costs are often in the walls.
6. Do you have good money management skills? With flipping, you have to spend money to make money. Can you rightly decide where to spend the money, and where to be tight? Not going over budget is one of the biggest challenges. (Yes, a budget.)
7. Do you have an experienced real estate professional to guide you through the process? There are several things that can be done up front to set you up for success. Many of them are in the original contract and the first escrow. There are things to be documented along the way. You need a well thought-out end game. Skipping steps in the beginning can cost you dearly in the end.
8. Do you have time to commit to the project? Even if your budget includes hiring others to do some or most of the work, there will be a toll on your time. At the very least there is paperwork and oversight. Expecting to do everything on evenings and weekends can be a recipe for failure. Do you have a flexible job, or some vacation time coming?
9. Are you emotionally stable? Any real estate transaction is stressful, but flipping a house drags the process out over several more months. There are always unplanned factors that can complicate and defeat your goals. You have to have the tolerance to wait things out and the ability to persevere or change course. Without losing your sanity.
10. Are you realistic?
If you are confident in all 10 of your answers, you may be a flipping genius! If a few answers were weak, then you need to consult with one.
There are dreamers who think they can, and there are dreamers who know they can. You need to be one who knows. Before considering a flip, make sure you really have what it takes. Then enjoy the adventure!
