Ralph R. Roberts - Flipping Houses For Dummies

2 Zoom in on a dontwanner — a distressed property that the owner obviously doesn’t want or can’t afford to keep.A distressed house usually has a distressed owner. See Chapters 6, 7, and 8for various ways to find distressed properties. (Landscape maintenance is typically a good, early indication of a distressed property.)

3 Research the property carefully and then calculate the most you can pay for it and still earn a decent profit.You should be fairly certain that you’ll earn at least 20 percent for your trouble. See Part 3for more about researching and evaluating properties and calculating a maximum purchase price.

4 Haggle with the seller to purchase the house at a price that virtually ensures you’ll profit from the flip, as I explain in Chapter 12 .In some cases, you won’t haggle with sellers but bid at an auction instead; see Chapters 7and 8for details on finding and buying properties in foreclosure and other special markets.

Buying a house to flip is like buying a beat-up antique at a garage sale: You got the house for a bargain because it needs work that the seller hasn’t the time, money, or desire to take on. By cleaning up the joint, fixing whatever is broken, and making a few renovations, you can bring the property up to market standards and sell it for its full market value. In the following sections, I walk you through the types of repairs and renovations you can make.

Repairs and renovations require careful planning and execution to keep them on schedule and within budget. Before you begin, prioritize your repairs and renovations so that you know what’s most important; I give you all the tools and tips you need in Chapter 14. Invest your time and money in the repairs and renovations that promise the most bang for your buck — and then if you need to trim costs, you can skimp on the less important stuff.

Schedule the work so that it proceeds logically. If you install new tile or carpeting or refinish the floors before painting the walls and ceiling, you risk ruining the new tile, carpeting, or flooring. A good rule of thumb is to work on the infrastructure first — the foundation, electricity, plumbing, heating, and air conditioning. Then, work from the top down, starting with the roof and finishing with the floors. Likewise, depending on the location, you may need to schedule curb appeal renovations in the spring, summer, or fall — such as new landscaping or siding or a new roof.

The ideal house for a first-time flipper is one that requires only cosmetic work — what I call makeup. Cosmetic work, covered in Chapter 15, includes the following low-cost repairs and renovations:

A fresh coat of paint throughout the house, including base trim

New siding, fresh paint, gutter replacements, and other external tweaks

New wall-to-wall carpeting in any rooms that need it

New light fixtures

New outlet and light-switch covers

A thorough cleaning, inside and out

Window washing

Storm window and door repair or replacement

Lawn mowing, weeding, and trimming trees and shrubs

Cosmetic repairs don’t add as much real value to a house as, say, a new kitchen may add, but they attract buyers. Often a house is undervalued simply because it’s unkempt and not drawing any buyers to look at it. For example, a do-it-yourself paint job on older kitchen cabinets can add that extra punch to your property without sinking any additional cost into your kitchen.

Curb appeal is everything when you’re trying to sell a house. If prospective buyers pull up in front of a house that looks disheveled, they’re likely to drive off before you have time to open the front door. To sell your house for top dollar, it has to make a good first impression. It must have curb appeal — a fresh, well-manicured appearance that draws people into the home.

Chapter 16shows you how to landscape and prepare the exterior of the house to make it draw passersby inside for a closer look.

Depending on their condition, kitchens and bathrooms have the ability to sell houses or sink deals. A spacious kitchen with plenty of counter space and all the essential amenities — a clean range, refrigerator, microwave oven, and dishwasher — creates an impression that the kitchen is an inviting place to prepare meals and hang out with friends and family members. A sparkling-clean, well-lit bathroom with plenty of storage space creates a sense of comfort and cleanliness that permeates the house.

Although you should never over-improve a property, renovations that bring the kitchen and bath up to market standards always pay for themselves by adding real value to the property and making it more attractive to buyers. In fact, according to the National Association of Realtors’ 2019 Cost Versus Value Report, Realtors rank a kitchen remodel as the top renovation that appeals to potential buyers. See Chapter 17for the full scoop on renovating kitchens and bathrooms.

Somewhere between painting a room and building a room addition are moderate changes that you can make to a house to improve its value and draw more buyers. These improvements include installing replacement windows, replacing the screen doors or entry doors, and refinishing wood floors or installing tile or vinyl flooring. Chapter 18lays out your options.

Some houses are begging for a few major overhauls. Maybe the house has an unfinished attic that’s perfect for an additional bedroom or a beautifully landscaped backyard that has no easy access and no deck or patio. In some cases, you may discover a dinky house surrounded by mansions. By raising the roof and building a second story, you can double the living space and boost the house into a higher bracket. Chapter 19takes on some of these major renovations, which may inspire your own creative visions.

Although this book focuses on the buy-fix-sell approach to flipping houses, you can profit from a flip in numerous ways, including these strategies:

Sell the property.

Sell to an investor who’s better equipped and more motivated to flip the property (you’re essentially earning a finder’s fee, also known as the bird-dog fee ).

Refinance to cash out the equity in the property — usually, to help finance repairs and renovations or to use the money for other investment properties.

Sell the property on a lease option (rent-to-own), essentially collecting rent with the hope that your tenants will eventually purchase the property.

Lease the property — become a landlord.

Sell the property on a contract, acting as a bank and collecting the interest.

See Chapter 20for details on the various approaches to profit from a flip. In Chapters 21and 22, I explain how to market and sell your home for top dollar. And in Chapter 23, I explain certain tax considerations that may help you keep more of your profit by paying less of it to your rich Uncle Sam.