Flipping Is Not Always The Way It Looks
Everybody dreams of an opportunity to get rich quickly by either winning the lottery or doing something that doesn’t take a whole lot of work. The new game is flipping homes. It’s such a topic of discussion that they’ve even made multiple reality TV shows about flipping homes and people making overnight fortunes.
Let us burst your bubble right now by telling you, it’s not as easy as it looks. There’s no free lunch! Flipping a home and making a profit takes hard work, takes a lot of research in advance, a little bit of luck and a lot of intuition.
Finding A Good Property
The first thing is finding the property. They always say you make your money when you buy! Our Pacific Palisades Realtors say buying a home at market value these days is not even an easy thing, much less to find property that is priced at under market value.
Our Pacific Palisades Real Estate Agents often say that as a flipper you certainly are not coming up with a new idea that people have not already thought of. Many people have already gotten out of the market thinking that the market already thinking it’s too inflated. And as you know, with any pyramid, the people who come in last are usually the people who lose.
Flipping homes is not for an amateur. On the other hand, if you can find a really, good deal by getting it off market, you’re in the game. Now all you need to do is get your improvements made without spending a lot of money and a lot of time.
If you pay market value for a property and you overpay to make the improvements and you take an excessive amount of time to do the remodel, our Pacific Palisades Listing Agents say that you’re going to find out that your profit is getting eaten up in many ways.
Time on the market will eat your profit up especially if you’re paying interest on the money. Some flippers don’t have money themselves, so to compete in this market they borrow “hard money”. “Hard Money” is very expensive.
It can cost as much as 9%-10% interest. If you are annualizing your anticipated return, our Pacific Palisades Real Estate Agents suggest that you be very mindful of how much time you’re taking and how much interest you are incurring.
Hiring The Right Subcontractors
Step two after finding a good property and making a wise choice is having your subcontractors and crews in place. A majority of Pacific Palisades Real Estate Agents will often tell you that people who do this professionally have crews on retainer who they pay whether there is work to be done or not.
If you’re a small guy just starting out, you can’t afford to have your own crew, so you will need to resort to finding subcontractors.
Our Pacific Palisades Realtors will tell you that most subcontractors these days are very busy and would much rather work for people who they have a steady flow from. Of-course if you know people that’s great, but subcontractors are not easy to find especially good ones that are licensed.
The next thing you need to know is that your subcontractors will keep their pedal to the metal, that is they need to keep working on your project and not get distracted by too many other projects that they are working at the same time.
Remember time is money. You want to make sure you make the right improvements.
Making the wrong improvements will not give you a return on your investment. You need to cut down your cost and you need to cut down your time to realize the profit.
Our Pacific Palisades Real Estate Agents suggest that you be intuitive about where you purchase your property in the first place. The neighborhood is very important and so is the location in that neighborhood.
If you go to high quality with your improvements, you may not get the right return and if you go too cheap with your quality of improvements, people will also notice that and not want to buy the house.
If the house sits on the market too long, most Pacific Palisades Listing Agents will tell you that you’re going to eventually have to drop your price and sell for less. There goes your profit. What if the market turns? One never knows if the market is going to keep heading up or if perhaps it might go the other way.
When you do your analysis, our Pacific Palisades Realtors recommend that you factor in where the market may go and also understand that the market could take a dip of anywhere from 6%-10%. Is there enough profit in your analysis for the market to take that dip? Don’t forget you have to pay for property taxes and later on you have capital gains taxes to pay, that is if there is profit.
Additionally, our Pacific Palisades Real Estate Agents advise that you try to be conservative in how long you anticipate going through rehab and how long it’s going to be on the market, and the necessary time to go through escrow. Also understand that there are fees you may not be anticipating.
The architect wants his fee, the civil engineer wants his fee, the structural engineer wants his fee and the surveyor wants his fee and don’t forget about the city, they want their fees too for permits and for school tax.
You need to factor all these things in for your anticipated profit. In addition, our Pacific Palisades Real Listing Agents suggest that you take into consideration everything else and the time periods involved. Some cities take a long time just to approve your plans and then if you’re in planned development you have to go through the HOA to approve your plans.
It’s a great thing to flip homes but you have to be prepared for the hiccups that come with the territory. If you’re experienced and you’ve done your analysis and you can get the home at fair market value or below, you might be a good candidate as a flipper.
But don’t take the money that you’ve set aside for your kids college education and try to parlay the money to double, later to find out that you’ve lost it Flipping is not easy but it is a good business for those who calculate wisely.
Check your numbers carefully and get some education on the market before making a decision that you later regret.
For comments, questions, or information, call Ron Wynn at (310) 963-9944 or email: Ron@RonWynn.com