Property flipping is more than just an activity you see on TV. It’s a great way to make money in the real estate market. Property flipping is the practice of buying houses and other types of real estate, renovating the existing structure, and reselling the property for a higher price.
This type of enterprise can be appealing. Buyers avoid the stresses of building the properties from scratch, but can still use their creativity when renovating.
One of the most difficult challenges when house flipping is cost minimization. You can do this by properly managing your project budget, conducting thorough research, and saving for unexpected expenses. By taking these preemptive steps, you can increase the profit brought in by your real estate purchases.
Research the Market Thoroughly
The first step for any property flipping project is thorough market research. This can include conducting research on sites like Zillow or speaking with local real estate agents to see how long houses in your area are staying on the market. If houses are selling quickly, the market is hot and you can take advantage of those opportunities.
Another important element of market research is the age demographics of the area. For example, neighborhoods with older residents may be more likely to sell at a reasonable rate in comparison to neighborhoods with younger residents.
Finally, you need to understand how the local market is growing. Who is moving to the area? How many new businesses are opening? Answering these questions will help you to see how many potential buyers you’ll have for a house you may buy and renovate.
Learn What to Look For in an Investment Property
Once you have determined if your chosen area is a good choice for buying and selling a fixer-upper, you will need to find the investment property you’d like to purchase. When looking for an investment property, the following factors should be considered:
- Local amenities: Proximity to local amenities like grocery stores, small businesses, schools, and recreational areas can make a property more appealing to buyers.
- Property size: When considering a property in a residential area, then finding a larger property with space for a well-landscaped yard can give you an edge on the market.
- Renovation cost: You should work with an experienced construction contractor with the right tools to estimate the construction costs of the property renovation before putting in an offer.
Each of these factors, along with your overall budget, is important when choosing which property to purchase and renovate.
Create a Detailed Project Scope and Timeline
As you start any property flipping project, you will need to create a step-by-step plan. This plan should include realistic estimates for materials, costs, and a project timeline.
Using technological tools, such as construction takeoff software, can provide you with a way to create your construction plan, communicate with team members and contractors, and use AI tools to inform your choices.
Creating a detailed project scope and timeline allows you to work through the project while staying on budget. It also helps you to maintain clear communication with contractors and other involved parties.
Find the Right Balance of DIY vs. Hiring
When working on a house flipping project, one of the first ideas you may consider to be more cost-effective is doing it yourself. DIY projects appeal to anyone looking to save money during a renovation, but there are some drawbacks to this strategy.
You will need to be careful which tasks you choose to DIY. For example, redoing the electrical wiring for your property on your own, without the help of a trained electrician, may increase your risk of fire damage in the future. Similarly, attempting to fix structural damage without the proper tools and training can lead to risk for future homeowners.
You can remove old wallpaper, re-tile the bathroom floor, or decorate a completed house without running the risk of impacting the structural integrity of the home. However, you should always know when to ask for outside help from contractors when starting a project. When outlining the direct and indirect costs of your home renovation, include the labor costs associated with hiring contractors.
Negotiate Prices and Contracts
Flipping a house successfully depends on finding the right contractors and materials for the job. When looking for a contractor, always conduct thorough research, shop around, and acquire estimates from multiple contractors in your area before choosing who you’d like to work with.
Instead of relying on home improvement retailers or any other material vendors, your contractor should know exactly what materials they need and how much they will cost. This includes estimations for drywall, framing material, painting supplies, and even concrete. These dimensions will impact the price and materials needed.
To save money, consider working with contractors during the off-season. You can also shop around and purchase materials yourself instead of subcontracting the task. Finally, by openly taking bids from multiple contractors, you’ll be able to more effectively negotiate prices.
Consider New Markets Carefully
There are alternative markets for property flipping beyond house flipping. These options, such as commercial real estate and raw land, offer access to new markets and customers.
When considering a move into a new market, consider the following questions:
- How does this new market differ from your current market?
- How do the costs between these markets differ? What is the profit potential?
- What skills will you need to learn and what challenges will you need to overcome to succeed in this new market?
Commercial real estate flipping, for example, offers an appealing profit potential. Commercial properties can be more versatile than residential properties, and the flipping process involves more practical than aesthetic choices. When looking into new types of commercial property, use technology to assist in creating accurate cost estimates and make plans for the layout of the new property.
Be Smart About Scaling Up
You may even find that what started as a side hustle can be profitable enough to start growing your business further. This growth can include hiring new employees, purchasing more properties, and setting up an office space for planning and meeting with potential buyers and realtors.
However, it is important to be aware of the risks of expanding a business too quickly. These risks include:
- Heavy workload: A heavy workload can lead to burnout and high turnover rates in your team. When scaling up your business, automate tasks, expand your team, and take advantage of technology to reduce the risk of developing an unmanageable workload.
- Decline in quality: Scaling up too quickly can lead to shortcuts and compromises on quality. Prioritizing quality over quantity can help you to build your business, and your positive professional reputation, in a smart way.
- Excessive outward cash flow: There are many examples of businesses that have failed due to scaling too fast. Be careful not to take on too much debt to grow before your property-flipping business is ready. Instead, diversify your projects, such as painting, so you can reach new markets at a stable pace.
To grow successfully, you’ll need to maintain insight into the current market and the actions of your competitors. You’ll be surprised at the profit you can make when flipping houses with a strategic mindset.