Flip a New House

There's an incredible amount of money to be made in flipping new homes if you can get it right. In fact, you can easily make $25,000 or more per flip, and do it in under 90 days. However, keep in mind that you also stand to lose that much, or more, on a flip if you miscalculate the opportunity. Flipping new houses can be a way to make large amounts of money in an unconventional way, but also requires research, hard work, and a healthy appetite for risk.

Steps

Determining If House Flipping is Right for You

1. Be sure that you have enough extra cash. Flipping new houses involves actually buying a home or property. So in addition to adding another mortgage to your monthly expenses, you'll also most likely have to come up with a down payment. Hopefully, your sale price will cover these expenses. Regardless, you'll need a large amount of cash on hand and a flexible monthly budget to get started flipping houses.
   • They are also other expenses, like utilities and taxes, that come into play. When you sell the house, you'll also have to pay capital gains tax on your profit.
2. Manage your expectations. Successful flippers don't simply buy and sell houses without doing any intermediate work or marketing efforts. Realize that you'll have to put in work and expense to make changes to the house in many cases. In others, you'll want to avoid realtor's fees and try to sell the house yourself, which requires some marketing and leg work. Be sure that you are willing to put in the work to do this right.
3. Make sure you have enough free time. This is not a weekend hobby, but a full-time job. In most cases, you'll have to schedule maintenance, oversee construction on additions or changes, and deal with other issues that arise with the house. You'll also have to show the house to potential buyers on your own if you don't plan to use a realtor. It would be difficult to schedule all of that around another full-time job.
4. Be able to deal with risk and failure. Chances are, you'll make at least a few missteps when getting started flipping houses. These mistakes can cost you thousands or tens of thousands of dollars. Additionally, accidents may occur that cost you thousands or set your current project back weeks or months. If you're the type of person who can't think and act rationally in these times of stress, house flipping may not be for you.

Searching For a Property

1. Familiarize yourself with how to buy a home or condo. If you've already done that, then you already know the process and it's second nature. If you've never purchased a home, then consult with a realtor. There are a few steps involved when purchasing a home that you need to be familiar with. Generally, this process includes placing an offer, getting a mortgage, removing conditions, and taking possession.
   • You can also skip the initial sale entirely buying your own lots and building your own homes on them to sell. In this process, you can either build the home yourself or hire a builder to do it for you. These two processes are known spec and custom construction, respectively.
2. Research the market conditions in your area. Talk to realtors about how much volume and home demand they are experiencing. You may also want to search in your local newspaper for housing reports.
   • The housing market is like the stock market in that it has both "bull" and "bear" cycles. The housing market can take years and years to switch from one cycle to another. This mean that real estate might either be in "high demand" or "low demand" at any given time.
   • If your area is currently experiencing "low demand" for homes, it will be much more challenging, or at least less profitable, to flip houses.
   • If you really want to get started with flipping, but find that your local housing market isn't ripe for it, consider moving to an area with a more active market. Research the hottest markets online. Some areas are currently experiencing dramatic price recoveries and are ready for flip investments.
3. Find a property. Once you've decided that the time is right to begin a new project, search for the right lot within your budget. There are several ways to go about doing this.
   • Some people look for distressed properties. These are ones that the seller is "desperate to sell", for reasons such as divorce, bankruptcy, death, poor condition of the property, or late on payments. The seller's desire to sell will allow you to negotiate a better price on the land.
   • Another way is to simply locate the areas of your city or town that are "new neighborhoods", where all the new construction is going on. Go there, and drive around. Look for signs placed by builders who want to sell their new home or available open lots.
4. Consider what type of home you could build on a property. Do your research and figure out what house style, size, and specific features are fashionable or commonly sold in your area. Look at new houses being sold and try to emulate their successes. You may have to assemble a team with a designer and architect to get a realistic idea of what you can do with a given lot and budget.
   • Try to plan for homes that sell in the middle to upper range. What that means is the amount where the average family would be able to afford it. Generally that means between about $200,000, and $500,000 depending on your area. You want that price range because these sell the fastest as there is the largest population density looking for these mid-range homes. It could be much less or much more but that's about the average.
   • In many cases, the home must have three or more bedrooms and at least two full bathrooms.
5. Contact builders about "spec homes." Another way to find a house is simply by looking up a list of builders in your area. Call them all up and ask them if they have any "spec homes" for sale. That's what a new home with no actual owner is called (other than the builder).
   • The reason you want to consider finding a brand new home is simple. It’s brand new, there are no renovations needed. It shows way better and you’ll get more people coming to see it than you would an older home. And the margins are bigger. That means new homes command a “premium". If a person wants to live in a brand new home, they have to pay a higher price tag. Almost like buying a new car off the lot, only that it’s not going to depreciate.
   • Additionally, the new neighborhoods generally offer more features and amenities such as parks, creeks, walking trails, etc. They’re nicer with more upgrades. Your home is surrounded by nice new homes. All these features combined add up and make it easier to flip your home.
6. Investigate your favorite opportunities further. In time you'll narrow down your search to a few properties. At this point do some research on each builder you are considering to make sure they are reputable and will finish the home according to the standards that they claim, such as granite counter tops, 50 ounce carpet and other specs. Make sure they do quality work and even inspect some of their other homes they've built. If they have no other homes built to show you, then be very careful.
   • Be sure to use data from the multiple listings service (MLS) to see neighborhood trends and average values for similar houses. This should give you an idea of the market value for the house. Go to http://www.mls.com to use the service.

Buying the Property

1. Consider the costs. Look at the costs of the lot, builder's fees, and construction costs. You'll also have to factor in commissions, property taxes, and insurance, as well as the cost of financing your investment. Total these numbers using figures from your builder and comparable projects. You can then use this total to compare to an estimated sale price to determine whether or not you can make a reasonable profit on the sale of the house.
2. Once you find a property that's a great deal, jump on it. If you know, based on actual MLS comparisons in that area, that you could flip it for at least $25,000 more then, move fast! Immediately make an offer. If it's accepted then you will still give you time to do your research on the builder and the condition of the home.
   • In the offer, be sure to have multiple ways out of the contract, such as "subject to financing". If you have a problem and need to get out and don't include this type of clause, then you won't be able to get out if there is a problem. The most common is simply "subject to financing by x date". If you can't make the financing by then ask for an extension on the condition date.
3. Acquire financing. In order to actually purchase the property and begin or continue construction, you'll have to take out a loan. For flipping houses, you likely have to take out a loan with a high interest rate, due to the inherent risk involved in house flipping. In many cases, this could be as high as a 10 to 12 percent annual rate.
   • Having a good credit history and score can help you get a better rate, but the loan will still be considered risky by many lenders.
4. Remove conditions on the home. That means you have to take possession the date of the contract. This is happening as your home is being built. So now you can talk to the builder and choose your features and colors for the house's interior and exterior. If you have no experience with doing this, then find out if the builder has a professional who can consult with you.
5. Complete your house. Be sure to monitor the work of the builder as they finish the home according to your specs. You might want to consult other books or experts in finishing the home, especially for your first few products. You'll want to add visible luxury finishes without sacrificing too much of your budget.
   • Choose "all neutral colors" textures, paints, and materials, and finishings that would suit just about any taste. Do not choose bright colors for anything. Remember you are "flipping" this home. You're making the interior for "someone else". It's not what you like, it's what the general population will like, which is "neutral tones" on the inside and out.
   • If you don't do anything else, make sure the kitchen is perfect. This is the most important room in the house for many buyers. If this is already good, look at the bathrooms next.

Selling the House

1. Now your home is ready, make it ready for showing. Get rid of all your junk and any construction materials or equipment lying around. This home is going to be up for sale. That means is has to be "100% clutter free". A simple way to understand this is go to any "show home" in your area and see how they've done the interior. Your furniture, if you have any at all, doesn't have to be as good or as fancy as they might have in the show home.
   • Do not leave anything in plain sight. Put everything away in cupboards, closets, drawers, basement and garage. Leaving the main living area looking uncluttered. Do not use too much furniture either. You don't want the rooms to look to busy. Also do not mount too many photos or picture on the walls. You want everything to be pristine. Because your buyer wants a "new home" don't make it into a "used home" for them. Make it into a "show home" for them.
2. List the home. You can sell it yourself to save money or list it on the MLS with a realtor. The reason you would want to sell through the MLS is that there are thousands of realtors in your area who will see that MLS (multiple listing service) listing and begin showing your home maybe even "daily". You'll have tons of realtors competing to sell your home. Compare that to "just you" trying to sell it. Yes, you'll give up a commission but that can be factored into the sale price.
   • List your home competitively within the area. However, when buying the home you should have gotten a deal, and had already anticipated that you could resell it for at least $50,000 more based on actual market conditions and research that you did.
   • Don't overprice it or it won't sell, and don't underprice it and leave money on the table. But it's better to underprice it and just not be flexible on your asking price during the negotiation, than to overprice it and have nobody come look at it.
3. When you get an offer consider the situation carefully. Never, under any circumstances, get into a negotiation where you're trading offers back and forth. If they give you an offer, you must always tell them, "I'll think about it and get back to you in an hour". Take some time to think about it. Do not start trading offers back and forth with a buyer without taking at least an hour. One thing you can do when you are with the buyer and they say "how about this much...", tell them, "okay I'll take that offer and I'll go and have a coffee and I'll be back in one hour to let you know".
   • This is so important because chances are they have not offered you enough, and now you want to counter the offer. What you can do is take that hour to structure your counter offer. For example, if their offer is almost what you want but not quite, come back and say something like "okay, I'll accept your offer but I'm not leaving the appliances". They might be fine with that, and that makes up your $5000 that you would have stood to lose had you gotten into a hasty negotiation.
4. Go forward with the sale. The buyer of your home is going to want to be given a time frame to "remove conditions". Generally if you have an offer the buyer will be "serious" about your home. If they need an extension only give it if there is little to no other activity. But if you're still getting lots of other offers on your home, or perhaps feel like you're not getting as good a deal as you initially thought, then don't extend the condition date, thus making the offer null and void. That will allow you to take your back up offer which might be better and stronger.
   • Generally though, you want to be accommodating at this point to make the deal go through successfully. So, if they want to bring their family by for the third time, just let them come see it.
5. Look for your next project. Now that the buyer has removed conditions, you can start to begin looking for a new property to purchase or to try to find another one to flip the same way as you just did. On the day they take possession, you have to be "out". Then shortly after they take possession, you will get a big fat paycheck from the profit you made off the sale. That is, unless you port that into the new home you end up buying. It's generally best to leave those proceeds you make in your home.
   • Don't cash out and go spend the money. It's better to compound the effect and allow your money to go to work for you're in the next purchase than to waste it on shopping and extravagance. Sure, buy yourself a vacation out of the deal for a few grand but let the rest of that profit go to work for you in the next home or another investment where it's making you even more money.

Tips

• This is a big trend. But that means lots of competition as well. If you're going to do this then be sure to do some reading up on it. However, keep in mind that most home flipping shows, books, and materials focus in on flipping older properties and distressed properties, some of which might need renovations, and that's a whole other ball park. That's why you should consider brand new homes where the builder just want to liquidate for a small amount of profit. Some builders just want to get out, or they "have to get out" and will sell at break even.
• If you're getting a ton of people coming to see your home, as in several per day, you might be under-pricing your property. You wouldn't be getting so many unless perhaps you're price is so low that people think it's a great deal, and that's not your goal. Your goal is to be "competitively priced" but still be able to turn a profit.
• Try to find what they call a "flat fee" real estate company to go with. They will get your listing on the most popular MLS in your area, allowing other realtors to begin selling your home. However, they only charge a "flat fee", which often will save you around 40% in realtors commissions.
• When you buy a home, unless you're already very familiar with filling out contracts and negotiations, try to get a lawyer and/or a realtor to be present and working on your behalf. Without them, the seller might try to set terms that could end up hurting you, and you might not even know it. So you want a few experienced professionals there on your team advising you before you sign on the dotted line to buy or sell the home.

Warnings

• Write out a plan of action carefully details down to the last item. Weigh all the pros and cons. How it will affect your home life, do you have a family to think about, how will doing this affect your job, and can you afford any unexpected costs to carry the property until you can flip it?
• This is a basic outline on how this is done. You will be dealing with large amounts of money and be under some conditions that could cost you a lot of money if you make a mistake. In other words, be very careful. This is intended for people who are willing to do their homework, cross their "I's" and dot all their "T's". Not for those who are going to foolishly just rush in and "wing it". Remember that there is a lot riding on these deals.

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