Dalena Properties
Feb 24 2017

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Tags: house flipping  home maintenance  real estate investment 

Is House Flipping a Good Investment?
House Flipping - A Good Real Estate Investment?

Last month, we discussed what makes a good real estate investment and things to look for when you are considering purchasing a property. We also touch briefly on the subject of 'House Flipping' and whether this was worth all the effort of the investment.

We determined that while some investors make healthy profits from house flipping, it is still a risky adventure, if you don't know what you're doing. You cannot assume that by simply adding multiple upgrades and additions to a property that it will sell for an enormous profit.

This is the risk that all property investors and house flippers have to make because they need to recuperate the expenses from the renovations and upgrades in the final selling price, which may end up being way above the average going rate for similar homes in the same neighborhood.

What is House Flipping?

House flipping is the legal investment in real estate property, by real estate investors for the sole purpose of upgrading or renovating a property and selling it for a profit.

What You Should Consider Before House Flipping

1. Know Your Local Property Market
This may possibly be the most important step to take before making your investment. You should know, understand and extensively study the property market that you are intending to purchase in. Know which areas in your town are currently trending, for example which are the popular areas and what type of housing is popular in these areas.

Educate yourself on the average selling prices for houses in the area you wish to purchase in. Also consider what features other homes in the area include. For example, if most of the homes in the neighborhood feature solid wood flooring or have granite top kitchen counters, then you should make sure that yours includes these upgrades, so you can offer the same when it comes time to sell.

2. Consider Your Financial Position
You will no doubt need a solid financial position to help successfully see you through this adventure. You need to firstly consider how you will be purchasing the property that you intend to 'flip'. Most investor's purchase homes at low bargain prices or at an auction and may be in a position to purchase the property for cash. Otherwise, most people would need to secure a mortgage bond or home loan. For this you need to have a solid credit record with the bank, especially when most banks have become stricter with their requirements for home loan applications.

You also need enough cash available for the renovations and improvements that you intend making on the property. Building supplies and materials can be costly, so you need to make sure you have enough funds available to cover these costs.

3. Build Your List of Contacts & Potential Buyers

Having a list of contacts that you know and trust will go a long way in helping you complete your work and will save you a great deal of headaches and money in the long run. For example, by having a reputable carpenter, plumber and electrician that you know, trust and can work with is a big advantage.

Also, brush up on your negotiating skills, so you can effectively negotiate deals with contractors you hire to do skilled jobs. Learn the going rates for certain plumbing and electrical jobs.

Some real estate investors consider the services of an approved real estate agent in the area to sell your property for you, as they have the resources, time and waiting home buyers available, saving you a great amount of time and negotiating.

What to Consider When Renovating the Property

1. The Exterior - What Should You Improve?

1.1. Painting - You should definitely consider giving all exterior walls of the house a complete fresh coat of paint, including the boundary walls. This has great appeal to potential buyers and it gives the entire home a brand new look and feel.

1.2. Garden & Landscaping - Invest time and money in the garden, particularly the front garden, as this has great curb appeal and it is extremely appealing to home buyers, when it's time to sell. Consider adding fresh sods of grass to the front lawn, if needed and remove any wild growing foliage or bush that has become an eyesore. Lastly, you should spend time on the flowerbeds. Plant a mix of attractive bulbs and perennials to create a warm and inviting appeal. A home with an attractive garden and curb appeal attracts more buyers and gets more offers.

1.3. Windows & Doors - Make sure that all windows, shutters and doors are able to easily open, close and lock securely. If any outside doors or windows are warped or are weather damaged, consider replacing them, as this will affect your final asking price.


2. The Interior - What Should You Improve?

2.1. The Kitchen - The kitchen is one of the most important rooms of the home. If the kitchen is outdated, unattractive and un-appealing, you will have a far less chance of selling the house for the price you want. Allocate a decent portion of your money on upgrading the kitchen area to be fresh, modern and appealing.

Most modern homes these days have granite counter tops, which you should include to bring your home up to the same standards as other homes in the area. Also consider hiring a plumber to replace old kitchen sinks and taps if necessary, as this will add more value to the selling price.

2.2. The Bathroom - This is another important room of the home to consider. Upgrading or renovating the bathroom can greatly enhance the appeal and selling price of a home, so do consider investing money into improving this room. You may wish to consider adding in extra closet space, or replacing an old bath tub. If your budget allows, consider adding in a shower, in addition to the bath tub, which can be a highly attractive selling point.

2.3. The Plumbing & Wiring - None of the aforementioned upgrades is of any value if the plumbing or electrical wiring of the home is sub-standard. One of the first things you should do is hire an electrical contractor to inspect and test the homes wiring, plugs, light switches and geyser.

The electrician must also provide you with a certificate of compliance (COC) that verifies that the electrical installations of the house are in compliance with the Health and Safety Act. Additionally, you should also consider hiring a plumber to inspect the home's plumbing and pipes for any potential leaks or problems.

Related Article: What Makes A Good Real Estate Investment?

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