You might call it obsessive, but I listen to Pandora Radio for at least ten hours a day.
In case you are unaware of this amazing piece of technology, Pandora is an online radio program which plays only music that is similar to songs you already love. For example, if I only wanted to listen to songs like “Smells Like Teen Spirit,” I would enter that song in and would be presented with endless hours of music similar to the style, age, tempo, and genre found in that classic Nirvana song. The best part is – I can listen on my iPhone all day long, where ever I go (hence the “ten hours a day of Pandora”).
Pandora offers this completely for free – but is supported by short advertisements that play periodically (unless you upgrade to the premium service). This afternoon – wedged between some great songs, I heard an advertisement telling me that I could, “make an extra thirty, forty, or fifty thousand dollars every month without spending any of my own money FLIPPING HOUSES.”
Of course, the ad is for another “real estate guru” who can teach how to make millions from flipping houses. The advertisement seems so easy, so painless, and so attainable. All you need to do is attend the free mini-workshop, upgrade to the more intensive (and expensive) training session, and hire the guru as your own personal coach to get you there. Easy money without any work.
It’s for this very reason that the “flipping shows” became so popular on television over the last decade. People love to see and hear the “rags to riches” stories and believe that they, too, can achieve these results. Yes, some have actually made that kind of money flipping houses. However, the vast majority of flippers make little to no money on their projects.
Don’t get me wrong – flipping houses can be a successful way to earn a living and I, too, love the flipping shows. In fact, I entered the world of real estate investing after watching these shows and there is a good possibility that you did as well. However, TV is TV and the real world is, well, real.
If you are new to flipping, I wanted to share a few tips for flipping houses I’ve picked up over the past several years while investing in real estate. I hope the following suggestions will make their way into your psyche before you jump into the game unprepared, hoping to make millions flipping but end up just another sad story.
How to Analyze a Real Estate Deal
Deal analysis is one of the best ways to learn real estate investing and it comes down to fundamental comfort in estimating expenses, rents, and cash flow. This guide will give you the knowledge you need to begin analyzing properties with confidence.
Here are 6 House Flipping Tips
1.) Flipping Houses is Only “Sorta” Investing.
The process of buying a cheap property, adding value, and reselling can be profitable and exciting; and yes, it does fit the Webster’s definition of an investment. However, at face value this form of earning money more closely resembles the buy-low-sell-high model of a clothing store than the wealth building strategies of a true real estate investor. However, flipping CAN be an investment if you use it as a tool to generate income to support a more robust investment strategy. In other words, flipping can help either pay the bills (like a job) or used as a source of cash infusion into your investment strategy. However, don’t assume you will simply “flip your way to retirement.”
2.) You Make Your Money When You Buy
If you pay too much for a property, no amount of spit and shine is going to give you any better financial outcome. A good friend and investor told me once, “If I don’t blush when I offer, I offered too much.” This might mean it will take you twenty, fifty, or even a hundred offers before getting one accepted. However, that work will pay off significantly in the long run.
3.) Don’t Simply “Buy Low”
Cheap homes are often times the only factor would-be house flippers look for. However, keep in mind that a cheap house may need significantly more repairs – and money – than one simply average. For example, if you found a home for $50,000.00 that needed $40,000.00 of work and another, similar, that could be had for $80,000.00 but only required $10,000.00 worth of repairs, which would be a better flip? If future value is the same, obviously the home that needed far less work (and time) would be a better option. Additionally, these homes in the marginal middle of the price range are often neglected by both retail buyers AND investors – giving you a better opportunity for a lower price.
4.) Be Conservative In Your Math
Perhaps the easiest and most common mistake among newbie home flippers is an unrealistic look at what a home actually costs to remodel. Trust me – I’ve made this mistake multiple times. I am always continually surprised at just how quickly costs can add up. It is important that you get a realistic idea of what the costs will be and add significant amounts of cushion to your figures. Also, don’t forget to include holding costs – such as taxes, insurance, mortgage payments, utilities, and any other charges that might occur. A good rule of thumb is to double your projected budget and double your projected timeline. If the deal still pencils out, proceed.
5.) Sell As The Best and Lowest
In the better market of yester-year, you could flip a house and be either the best looking OR the lowest price among other homes on the market and still find success. In today’s market, however, it is imperative that you are both the best AND the lowest among comparable homes. It doesn’t mean you need to put solid granite counters and a fancy hot tub in a low-end home. However, if comparable homes include those items – you better as well.
6.) You MUST Have a Plan B
Hopefully, by following the advice above you will find yourself with a home that sells quickly and nets you a significant profit that you can reinvest in further endeavors. However, it’s not enough to have a quick-sale as your only option. In today’s market, you need to be prepared for the chance that your home will not sell for what you need. Many house flippers lost everything when the market dropped and they were no longer able to sell their homes. You need to be prepared for this to happen
If you’ve been following my posts here on BiggerPockets or my own blog, you probably have heard me talk negatively about flipping on several occasions. It’s not that I don’t like flipping – in fact, I love doing it. However, far too many “investors” jump into flipping without an accurate understanding of the time, pressures, and costs associated with it. If you are looking to flip a house, I highly recommend that you first partner with someone who has done many. Learn everything you can first, follow the advice I’ve shared above, and proceed. You may not, like the commercial suggested, make millions of dollars – but you just might find a career more exciting than the job you are currently in and a good source of cash for future investment deals.
It’s Your Turn
For those who are reading this and have successfully completed house flips in the past, please comment below and let me know what the main piece of advice you would like to give to newbie house flippers? Also, please feel free to share this on your Facebook, LinkedIn, Twitter, or simply share it with your Grandma!
Image courtesy of Thomas Quine