With the current economy you can purchases homes relatively cheap, especially if you follow foreclosures. If you are capable of fixing the home up on your own, it can be a lucrative investment. The problem is that some people get in over their head and end up not breaking even and sometimes even losing a large amount of money. Flipping houses is an investment, and therefore, a risk; it is not something you want to jump into before putting the proper thought into it. After recently going through a situation that did not end up quite the way I had planned, I will share with you what I have learned and some important aspects to consider when flipping homes.
If you have a partner who is investing in the home with you, have a detailed contract
No matter if it is a good friend or family member that you are going into business with, it is always a good idea to have a detailed contract. This will not only protect you financially, but will also protect the relationship. There is no room to argue about details later on if it is written out in black and white from the very beginning. We did not have the money to purchase a house on our own, but my husband has been building and remodeling homes for most of his life. He partnered with someone who had the money to put up for the initial investment, but couldn’t do any of the work. This actually worked out really well for us because other than the time put in, we had minimal risk if the house did not sale.
Check out the neighborhood prior to purchasing the home
The problem that we got into was that it took much longer than anticipated to get the money back out of the house because of the neighborhood it was in. It took the house over 6 months to sale and we also were unable to get the full asking price. It did not appear to be a bad neighborhood at first, but after working in the home, we realized that many of the neighbors did not take care of their property and many of the yards were cluttered with junk. I would suggest paying close attention to the neighborhood that you are purchasing the home from. Investigate the resale values of other homes in the area; find out not only what the asking price of nearby homes are, but also what they actually ended up selling for. Make sure that there are no homes close by that have been sitting vacant for a long time, unable to sale. That is a red flag right away that you are going to have trouble. Do not just take the first house that comes along; be smart and really examine the home and its surroundings.
Do not put more money into it then you can get back out
It is also important to remember that you are not going to be living in this home, it is strictly an investment. Therefore, you want to make sure that you are not going to have to spend more money fixing it up then you are going to profit. It is very important to determine what you are going to need to fix; look for a house with minor cosmetic improvements that need to be done, not severe structural damage or a house that is not even currently livable. Take the time to check out the home thoroughly and write out a detailed estimate for the work that will need to be done before you can put it back on the market. Add extra money into the budget for unexpected costs that will come up and then assess whether or not this is a wise venture.